With the recent Reserve Bank rate hikes representing the biggest rate hike since 1994, it’s understandable that many homeowners are worried about their current mortgage payments and are now looking for a better deal.
Inflation, sluggish wages and historic rate hikes have undoubtedly weighed on household budgets nationwide. However, there are many ways to combat rate hikes, one of which is to consider refinancing your home.
Refinancing your home involves taking out a new loan (with a new lender or your current lender) to pay off your existing home loan. This is advantageous because you can often lock in a lower interest rate than is attached to your current loan.
So if you’re concerned about future rate hikes and looking to swap lenders, how do you go about refinancing your home loan?
Check your loan agreement
If you terminate your contract early, you may incur an exit fee. In order to check this while considering a refinance, consult your loan agreement which must indicate the possible exit costs. These usually exist for the first three to five years of your contract and are usually either a fixed price or a percentage of your remaining loan balance.
If your loan was taken out after July 1, 2011, and you’ve been paying it back for at least five years, you shouldn’t have an exit fee.
However, if your loan was taken out before this date, you may do so, so be sure to check your contract details before proceeding.
Compare home loans
When comparing home loans, it’s important to check the fees you may incur as a result of refinancing. Besides the interest rate, you should check the loan application fee, appraisal fee, and settlement fee, as some (or all) of these could affect the amount of money you save on the loan. long-term refinancing.
The loan application fee is what you are charged when you apply for a new loan.
As with the first home loan application, you may be charged an appraisal fee if your new lender hires a professional home appraiser to inspect your home.
A settlement fee may also be charged by the new lender to pay off your old loan.
There are also many add-ons and features to consider when applying for a new loan. However, these are based on personal preference and whether they add value to the loan option. In many cases, it may be more beneficial to ask your current lender directly for a better deal before deciding to shop elsewhere.
Consider your current financial situation
With the rising cost of living, your income and overall financial situation has likely changed since the last time you applied for a home loan. This needs to be taken into consideration as it will affect your overall eligibility, as well as which home loan is right for you and which will save you the most money.
For a more in-depth loan comparison, a loan specialist or broker can help explain the loan options in more detail and guide you in choosing the home loan that will best meet your needs and savings goals. .
Apply for a loan that’s right for you
Once you’ve decided on a loan option that’s right for you, it’s time to apply. Depending on the bank or lender you have chosen, it may be possible to apply online – otherwise most places allow you to apply over the phone.
Banks and lenders will require details such as your income, mortgage repayments and other financial commitments, so be sure to organize this and relevant documents such as ID in advance. As mentioned earlier, they may also require an appraisal of your home by a real estate appraiser.
If your application is successful, you will receive a letter of offer and a contract for your new home loan.
Repay your current loan
Once your new loan is finalized and the contract signed, it will be used to pay off your pre-existing home loan. This contract should specify when you will also have to start repaying your new loan.
Your lender will also submit a “Mortgage Release” form to close the old mortgage account.
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