The Benefits Of Refinancing Your Home Loan
Its worth putting some time and effort into thinking about why you want to refinance and what potential benefits you hope to get out of it.
Refinancing your home loan could help you:
- Get a lower interest rate or reduced fees
- Borrow more for a renovation, investments, or a new car
- Reduce your repayments
- Consolidate several loans
Because refinancing often requires an extension of your loan term, it may also mean that youll pay more interest over the life of your loan.
Once youre clear on what you want to achieve, its much easier for you to ask the right questions of lenders and choose the loan that best suits your needs.
Doing your homework before you apply could help you make a decision that serves you down the track and helps you reap the rewards.
What Is Your Credit Score And Will Shopping Around Hurt It
The interest rate a lender will charge you on your new mortgage may be based in part on your . Your credit score can drop if multiple applications for credit trigger inquiries that appear on your credit report. But your credit score ignores inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping.
Understanding Your Current Financial Situation
Before you start looking for a new home loan, its good to check on your current financial position and the things a lender may want to know when you apply. This may help you decide if nows the right time to refinance and maybe which lender is better for you.
Remember when you apply to refinance your home loan, your lender will assess your ability to repay. Their decision will be based on the information you give them and whats currently expected in the industry.
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The Best Banks For Refinancing Home Mortgages
No matter how much you love your house, being stuck with mortgage terms you would like to be rid of makes enjoying your home harder every day. Theres no law that says you have to keep your current mortgage relationship. You have the right to refinance with a different lender, but you need a strategy for dumping your original mortgage holder.
Should I Refinance My Mortgage
If interest rates have dropped since you signed your mortgage, you might think about refinancingOpens a popup.. But before you take the leap, there are a few things to consider.
When you refinance your mortgage, you replace your existing mortgage with a new one on different terms. To find out if you qualify, your lender calculates your loan-to-value ratio by dividing the balance owing on your mortgage and any other debts secured by your property into the current value of your property. If your loan-to-value ratio is lower than 80%, you can refinance.
The lender also looks at your monthly income and debt payments. You may need to provide a copy of your T4 slip, notice of assessment or a recent pay stub your mortgage statement a recent property tax bill and recent asset statements for your investments, RRSPs and savings accounts.
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You Might Face Prepayment Penalties
While Rocket Mortgage® does not have a prepayment penalty, some lenders include clauses that penalize you if you pay off your loan before your term ends. For example, you may need to pay anything you saved in interest if you pay your loan off within 5 years of your term.
This can create a problem if youve already gotten one refinance and reset your loans term. Read through the terms of your last refinance and see if your loan has an early repayment penalty before you apply for a new one.
Contact Your Current Lender To Negotiate First
If you’ve checked your rate, made sure the break fees aren’t too high and you’re ready to refinance, there’s one step to take before you shop for a better deal. And that is: contact your current bank.
Before you refinance to a new lender, see if you can negotiate with your current lender to refinance your mortgage to a lower rate. If you want to get your hands on some more money, you may even be able to access more equity with a home loan top-up. This allows you to borrow a little more from your equity with your current lender and make your home loan slightly bigger.
If it’s just a better rate you want , ask to speak to their retention team. Tell them:
- You’re a customer of XX years
- You want to know if they are able to negotiate on their advertised interest rates
- If they can’t offer a better deal, you’ll be shopping around for a new loan
They have teams in place to handle these exact conversations, so don’t be intimidated or hesitant to ask. Their entire job is to stop you from leaving, and they often have the discretion to offer you a discount to entice you to stay.
A tip to make your argument for a discount even stronger? See what rate they charge new customers and compare it to what you’re paying. Research from the ACCC at the end of 2020 found there can be a difference of up to 0.58% between the rates banks and lenders charge new and existing customers, with cheaper rates offered to newbies to snag their business.
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Refinancing To Get A Better Interest Rate
With so many lenders and mortgage products on the market, lenders compete heavily when it comes to interest rates.
There are many different types of promotions offered by different lenders throughout the year so youll have to shop around to discover whats being offered.
If you are using a mortgage broker, its good to ask about the current promotions on the market. Brokers receive updates from the lenders and stay up to date with the latest offers.
How Can I Benefit From Refinancing
Depending on your goals, the benefits of refinancing can include:
- Getting a better interest rate to reduce the size of your mortgage.
- Reducing your monthly repayments.
- Consolidating debt such as credit cards, car loans, or tax debt into one monthly repayment.
- Getting competitive interest rate by refinancing to a major lender after fixing .
- to renovate your existing property, to build something, to buy an investment property, to go on a holiday, or just to have some cash in the bank.
Due to the , there is a very short window of opportunity for you to take if you want to refinance your home loan.
It all comes down to what youre trying to achieve so call us on 1300 889 743 or complete our and we can talk you through your options.
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Is It Wise Or Smart To Refinance With The Same Company Or Bank
Refinancing with your current lender may reap several financial benefits.
Refinancing your mortgage loan is a perfect way to reduce your current mortgage rate and save money each month. A refinanced mortgage creates a new home loan with new terms. You can extend the length of your mortgage, reduce the length of your mortgage or apply for a different type of loan. There is no rule that says you have to refinance with your current lender. In fact, many homeowners refinance with a different mortgage company. Sometimes it’s smart to go with your current lender at other times you’ll do better with a new one.
How Many Different Lenders Should I Apply To For A Mortgage
While the number of different lenders that borrowers should apply with depends on an individuals home buying process, research conducted by Freddie Mac provides borrowers with some guidance.
Freddie Mac shows that homebuyers who submitted loan applications multiple times reduced their chances of unfavorably high mortgage rates by nearly 5%. While homebuyers who only conducted one search, routinely paid higher mortgage rates than other borrowers.
Furthermore, homebuyers who searched at least five times got lower mortgage rates than borrowers who compared only three quotes.
So aim to apply with at least three mortgage lenders. But if you can, get quotes from five or more. The more lenders you apply with, the better your chances of finding an ultralow rate.
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How To Negotiate With Lender
You can refinance a mortgage with the same lender, but its important to negotiate the details so you save money. Follow these steps to get the best deal:
- Get rate quotes from multiple lenders. Compare the interest rate youll pay along with the closing costs and your monthly loan payment. Credible can help with this.
- Ask other lenders to offer a better rate. Take the best offer and ask the other lenders to offer a better interest rate or closing costs or both. Your original lender might be more willing to compete for your business if it knows youre shopping around.
- Consider paying discount points. A discount point is a fee you can pay in exchange for a lower interest rate. If you know youll be in the home long enough to recoup this cost, it could be worthwhile.
- Get everything in writing. If a lender offers a better deal, ask it to send it to you in writing.
Should I Refinance If I Have 10 Years Left
The breakeven period is how long it will take you to pay off the costs of closing on a new mortgage and start realizing the savings from a lower rate and lower monthly payments. … If a person has 10 years left, I’d try to encourage them to refinance into a 10-year mortgage, not a 15, 20 or 30, he said.
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What You Should Know About Refinancing Before You Apply
Switching lenders is often a smart move if you are looking to reduce the interest that you are paying for your loan
When it comes to home loans, you always have the option to switch through refinancing. In fact, most home-loan experts would advise you to review your current mortgage to ensure that you still have one of the most competitive products in the market.
Refinancing is the solution for homeowners who may not be happy with their current lenders anymore. Switching banks is smart move especially if it will eventually let you save thousands on your mortgage.
When you refinance, you move your home loan from one lender to another. Your new lender will treat it as a new application, and thus will need to get your property valued again. However, there is no need to undergo the settlement process.
While refinancing typically involves another lender, there are instances when you can refinance your loan with your current lender you just need to look at their newest home-loan offerings and check if you are qualified for the one that you think is right for you.
Here are some of the other things you should know before you refinance your home loan:
Pros And Cons Of Refinancing With Your Current Lender
| Pros | |
|---|---|
| May need to go through underwriting again | |
| Rewarded for being loyal customer | Could lose out on better service elsewhere |
The average closing costs on a mortgage refinance total $4,345, so any savings your current lender offers you makes refinancing even more worthwhile.
Since they already have your payment history on file and may have already completed an appraisal on your property within the last few years, your current lender has already completed much of the legwork that a new lender might require. As a result, you may be able to avoid some of the customary fees that new lenders might charge.
Advantages of refinancing through your current mortgage lender
These are some possible benefits of refinancing through your current lender:
- The process may be quicker and easier. Your current lender already has your information in its system and knows your history.
- Your lender may waive or cut some closing costs. If you refinance with your current lender, you may be able to get a break on certain closing costs, such as the appraisal fee.
- You may be able to negotiate better terms. You have likely already met with your lender and its loan officers, which could give you leverage when trying to refinance.
- Customers may get a discount for having multiple accounts. Certain banks offer rate discounts for customers with existing checking or savings accounts. Other banks offer rewards points for their credit cardholders who get a mortgage.
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Super: TD presents Asking for a FriendWhy Would You Refinance?
Welcome to Asking for a Friend. Lets see who could use some financial advice today.
Dear Asking for a Friend,My neighbour was talking about refinancing her home so she can borrow more money to build an extension, and it got me wondering…what exactly IS refinancing and why do people refinance?Sincerely,Next Door Nancy
I hear you, Nancy. First, what is refinancing?
Refinancing means renegotiating your existing mortgage loan agreement, usually to use any available equity in your home.
So what does that mean in real terms? Let’s say the value of your home is $500,000.
Super: $500,000
80% of home value 0.8 x $500,000 $400,000Outstanding balance of your mortgage $300,000How much you can borrow $100,000
Subject to the bank’s approval, you could borrow up to 80% of the value of your home less the outstanding balance of your mortgage.
That means if your home is worth $500,000 and you have an outstanding balance of $300,000 on your mortgage, you may be able to borrow an additional $100,000 .
So WHY do people refinance?
Super: To consolidate debts.
Super: Provide flexibility to pay for big ticket items.
Book an appointment and get financial advice for what you feel is most essential, through TD Ready Advice
Endslate: Visit td.com/readyadvice
Understanding Your Mortgage Repayment Schedule
If youve ever looked at your mortgage statement after a few years and thought, I havent paid this thing down a bit!, youre witnessing the effects of amortization.
Amortization is the payment schedule by which your loan balance goes from its starting balance to $0 over time.
The size of your principal and interest portions change each month based on this schedule. And unfortunately, amortization always favors the bank.
That means the early years of a loan require large interest payments, and include very little loan payback.
Only once youve held the loan a substantial amount of time do you start paying more toward your balance each month than toward interest.
For example: If you were to borrow $300,000 from the bank at a mortgage rate of 4 percent, after 10 years, here is how much you would still owe:
- A 15-year mortgage would have $119,000 remaining, or 40% of the original loan
- A 20-year mortgage would have $180,000 remaining, or 60% of the original loan
- A 30-year mortgage would have $235,000 remaining, or 78% of the original loan
With the 15year home loan, your loan is more than halfway paid. With the 30year mortgage, youve barely made a dent.
This is one of the reasons why homeowners are increasingly favoring 15year refinances over 30year ones.
Thankfully, todays rates are low enough to make 15year mortgages accessible for many homeowners who couldnt afford them before.
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Do You Pay Mortgage During Refinance
You won’t skip a monthly payment when you refinance, even though you might think you are. When you refinance, you typically don’t make a mortgage payment on the first of the month immediately after closing. Your first payment is due the next month. … In a refinance, your original loan is paid off at closing.
Which Lender Do I Choose
Its hard choosing the right lender as they offer different products and service. The key is to find a lender that has a product suited to your situation. This becomes a difficult task when your situation is unusually complicated or you have a bad credit history.
One of the worst things you can do is to simply stay with your current bank for the life of the loan. You could potentially be missing out on a deal with one of Australias 40 plus lenders.
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Negotiate Closing Costs As Well As Rates
Youre also free to negotiate refinancing costs.
For instance, you might opt for a noclosingcost refinance, where the lender covers your outofpocket costs in exchange for a higher interest rate. This is known as a lender credit.
With todays rates as low as they are, its possible for homeowners to get their closing costs covered, accept a slightly higher rate, and still walk away with substantial savings overall.
Alternatively, some lenders allow you to roll closing costs into your loan balance.
You might avoid the upfront costs of refinancing and still benefit from the lowest rates available to you.
Should You Have Reaffirmed Your Mortgage
But should your lawyer have recommended or tried to get your mortgage reaffirmed? Most likely not.
In bankruptcy, a reaffirmation agreement must be approved by either
- the bankruptcy judge, or
- your bankruptcy lawyer.
Bankruptcy court approval. Most bankruptcy judges will not approve mortgage reaffirmations, reasoning that a debtor can keep the house without reaffirming as long as he or she makes timely payments. This makes the reaffirmation an unnecessary liability. Often the only reason in favor of reaffirming is to reestablish a good payment history. Most bankruptcy judges feel that building future credit is not a sufficient reason to burden a debtor with mortgage liability.
Lawyer approval. If the judge wont sign off on the reaffirmation, then it wont be valid unless your lawyer signs a legal declaration stating that the reaffirmed debt will not impose an undue hardship on you or your dependents. Lawyers are very hesitant to sign such a document because they dont know what their own responsibility will be if you default. Lawyers also reason that if judges wont sign these agreements, then they shouldnt either.
The end result: Mortgages are almost never reaffirmed in bankruptcy.
-Leon
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