As one of largest debts that you will ever have in your life, your mortgage can be a great stress. Mortgages are debts that people have to live with for a large part of their life. So it’s obvious that you want the best mortgage deal possible. If you don’t feel that you currently have the best mortgage possible, then perhaps mortgage refinancing is the solution for you. Mortgage refinancing may offer a good opportunity to relieve the burden of debt and make your mortgage work better for you. However nobody makes decisions about their mortgage lightly. As a significant part of you financial well being, making changes to your mortgage will often cause you to have doubts:
- Am I doing the right thing?
- Is my mortgage going to be more expensive?
- Why am I even refinancing?
These doubts are legitimate and you should always make sure to consider all factors before refinancing your mortgage. Here are 5 points that can help you make a decision about refinancing.
Is your first mortgage the best possible deal?
It’s more than likely that your first mortgage will not be the best deal. Despite this most people stay with their first mortgage because of uncertainty, complacency or apathy. By not being a more informed consumer many of us miss out on better mortgage deals and wind up paying too much in interest and / or fees.
Even if your interest rate is competitive with the best buys in the marketplace, there could be other restrictions on the mortgage that are preventing you from extracting the best value from your loan facility. Once again it pays to be an informed consumer.
Other mortgage deals can give access to line-of-equity withdrawals, extra payments options, increased frequency payment options or even lump sum payments. Through mortgage refinancing it may be possible to give yourself an opportunity to obtain the best mortgage product available for your needs.
Explore all potential scenarios
For the best possible savings, mortgage refinancing requires you to keep your property for as long as possible. In reality your savings will not be that great if you sell your property in two years compared to ten years. To get a clearer picture of the savings you could make, calculate the cost of refinancing with these scenarios in mind:
- Keeping the house indefinitely
- Selling the house soon
- Selling the house in ten years
- Keeping the house as an investment property
These scenarios will each produce a different result and give you different savings. It’s important to consider the scenario that most relates to your situation. Only once you have explored these scenarios should you proceed with refinancing.
Prepare a Future budget
By budgeting for the future you can work out whether a mortgage refinancing deal will really save you money. In order to budget for the future in relation to your mortgage, you need to calculate the amount of interest you pay over the term of the mortgage and do the same with each potential mortgage refinancing product you are considering. You will find that some products may end up being more expensive and others cheaper for you. Only by doing this can you find which mortgage refinancing product is best for you.
Use this opportunity to cancel your other debt
Most of us have other debts to contend with as well as our mortgage. It is not uncommon for people to have credit cards with balances that add up to $5,000. Many refinanced loans can offer you the opportunity to eliminate this debt by consolidating it into your refinanced loan. This can potentially remove your high interest debt of 15-20% and above and turn it into low interest debt. The money you save every month on servicing that debt can be used to overpay your mortgage and reduce that debt by tens of thousands of dollars over the course of the term. Be mindful that you will be extending the term of the credit card debt so paying higher amounts to repay it early has definitely got to be a priority.
Calculate fees vs. Interest saved
Refinancing your mortgage can often result in fees of up to $5,000 or more; this discourages many people from refinancing. However in order to get a true picture of the savings you will be making you should compare the fees against the potential savings made from reduced interest. You will often find that the money saved from interest far outweighs any fees you might incur. Whilst you may pay fees initially, it is possible for you to make savings of tens of thousands of dollars.
Before you make any decisions about your mortgage you should take these factors into consideration. You might find that mortgage refinancing is the solution for you.
Be mindful of lenders or brokers encouraging you to refinance without asking you what outcomes you want, what your motivations to refinance are or bothering to get a good understanding of your personal and financial position. If their only interest seems to be to refinance you and only speak about ‘cheap interest rates, no fees’ but not about getting the outcome you are after – RUN!! These are not the people you should entrust your financial and lending matters to.
About the Author
Harry Pontikis is the Director of Chocolate Home Loans. Harry and his team of mortgage brokers, specialise in residential, business and commercial loans Australia wide.
This article may be republished proving it remains fully intact including the author bio.