The past year has seen a total turnaround in the lending landscape. Consecutive interest rate hikes have driven mortgage repayments up and tightened lending criteria.
In addition to the rising cost of living, there’s no doubt this has made things tough on home owners.
Many have looked to claw some of their money back by refinancing their home loan. Done correctly, switching loans can add up to big savings over the long term.
Here’s the lowdown on how to find a loan that’s right for you.
Know your budget
Do your sums and have a comprehensive picture of your living costs. Factor in any future changes, such as new babies, and major costs, such as a new car.
Try to make your budget as accurate as possible. Don’t underestimate your spending or your debts, or you could be damaging your chances of securing a loan.
Lenders are likely to cross-check your credit cards to assess your creditworthiness.
At this early stage, it also pays to get your documents in order. Lenders will want to see payslips, bank and credit card statements, and proof-of-identification documents.
Set your goals
Outline your short- and long-term goals, and don’t forget to factor in the changes ahead, said Rory McCotter, head of secured lending at HSBC.
“If you are thinking about refinancing, it’s also important to take the time to look at your future financial goals over the next two, five or 10 years,” he said.
“For example, are you planning to renovate or move homes, are you looking to consolidate your debts, or do you want to ramp up your investment portfolio? All of these considerations can impact how you approach your refinancing.”
Focus on more than the rate
Most home owners want to save money, so they compare rates when weighing up different loans. But there are many other factors to take into consideration.
Does your new loan allow you to consolidate debts? Can you access your home equity for renovations or investments? Does it have features such as a redraw facility or flexible repayment options?
Finance broker Sarah Wells advises taking the rate into account along with broader offerings made by lenders.
“Where a lot of Australians fall short is just focusing on the rate and they don’t think about what they need as far as banking structure or support around meeting their future goals and objectives,” she said.
“So have some really good conversations, know your budget, understand your goals and objectives.”
Do your research
There’s a wealth of information online, including home loan comparison sites. You may also want to talk to a mortgage broker for advice.
Don’t forget to consider the cost of exit fees versus the savings you will potentially make with a new loan, McCotter said.
“You need to consider if the benefits of refinancing outweigh the costs of refinancing for your circumstances,” he said.
“A potential downside of refinancing is costs such as break costs on your existing mortgage. However, not all loans come with break costs and many financial organisations offer cashback for new customers to help pay towards potential break costs.”
Future-proof your loan
As much as we’d like them to be, home loans are not set-and-forget exercises.
“Like an annual health check, try to set an annual mortgage reminder to explore how your current home loan compares to any deals out there,” McCotter said.
“You might be surprised at the savings you can find.”
Article source: Queensland Property Investor