REFINANCING 101: What You Need to Know Before Refinancing Your Mortgage.

Whether you're looking to reduce your monthly payments, or access your home's equity, refinancing your mortgage can help to achieve your financial goals and possibly add a bit of cash to your pocket through the many incentives banks use to attract new customers.

However, it's essential to understand the process, weigh up the pros & cons and determine whether it's the right move for you. You don't want to get caught in a situation where the cost of refinancing far outweighs the benefits.

Understanding Mortgage Refinancing

Mortgage refinancing involves repaying your current mortgage and taking out a new loan with different terms, usually with the goal of obtaining better conditions. This can involve working with your existing lender or switching to a new one, depending on which offers the most favourable terms.

Refinancing vs. Other Mortgage Changes.

Refinancing can often be confused with other mortgage adjustments, such as refixing and restructuring. So let’s look at the differences:

Refixing

Is the process of securing a new interest rate for a specific period with your bank, typically when your current fixed rate term is ending. 

Restructuring

Involves reviewing the terms of your existing mortgage and making changes to better suit your current financial situation, such as switching between fixed and variable rates or offsetting your loan against your savings account. When it comes to restructuring your mortgage, this can be done with your current lender, however, if their products aren't going to suit what you are trying to achieve through restructuring your mortgage, this is when a refinance might come into play.

Reasons to Refinance Your Mortgage

There are various reasons why homeowners choose to refinance their mortgage. Some of the most common motivations include:

Reduced monthly payments: By extending the loan term or securing a lower interest rate, refinancing can help lower your monthly payments, providing more financial flexibility.

Debt consolidation: If you have high-interest debt, such as credit card balances or personal loans, refinancing your mortgage to consolidate these debts can save you money and simplify your finances.

Accessing equity: Refinancing can allow you to tap into your home's equity for various purposes, such as home renovations, education expenses, or investments.

Evaluating Your Current Mortgage

Before considering a refinance, it’s best to evaluate your current mortgage to determine whether it's still meeting your needs or not:

Interest rate: Check if you are paying a competitive interest rate since you first obtained your mortgage.

Loan term: Is the length of your mortgage term appropriate for your financial situation, or would you benefit from extending or shortening the term?

Repayment flexibility: Does your current mortgage allow for extra repayments, lump sum payments, or other flexible repayment options that suit your financial goals?

When Is The Right Time to Refinance Your Mortgage?

Timing is important when it comes to refinancing your mortgage. Here are some factors to consider when determining the best time to refinance:

Interest rate environment: Keep an eye on market trends and consider refinancing when you are about to come off a fixed term to see if you can obtain a better rate with another Lender.

Credit score improvements: If you are with a non-bank lender for reasons to do with your credit score and it has improved since you first obtained your mortgage, you may qualify for better loan terms with a mainstream lender.

Equity accumulation: As you build equity in your home, refinancing can become more appealing, whether for accessing funds, buying another property or securing better loan terms.

Changes in financial circumstances: Major life events or changes in your financial situation such as a salary increase, windfall or expanding family, may warrant refinancing to better align with your needs.

Costs Associated with Refinancing

This one can catch you out if you haven't been informed properly. While refinancing can lead to significant savings, it's important to consider the associated costs, which may include:

Break fees: If you have a fixed-rate mortgage, it's essential to consider the potential costs of refinancing before your fixed term expires. Breaking a fixed-rate mortgage contract early, can result in break fees or penalties which the Lender charges to compensate for lost interest revenue.

Legal fees: You'll need to work with a lawyer to handle the necessary documentation and registration, which can involve legal fees. 

Valuation fees: Some lenders may require a current registered valuation of your property, which can cost anywhere in the range of $500 to over $1000 depending on your property and the location.

Repayment of incentives: If your original mortgage included incentives, such as a cash contribution from the bank, you may need to repay this if you refinance before the specified loyalty period ends.

So as you can see, there are lots of things to consider before you go about refinancing your mortgage. 

By working with a qualified Mortgage Adviser you’ll not only gain access to a wide range of loan products but you will also secure the best terms for your needs.

Additionally, we can help you navigate the complexities of refinancing, such as break fees, loan structuring, and negotiations with lenders. So feel free to get in touch to find out if refinancing your mortgage is the right move for you.