The complete guide to refinancing www.ospreymortgagelending.com
What is refinancing and How does it work? Refinancing is what happens when you take out a new home loan to pay off your existing one. Usually, this also involves moving to a new lender. There are many reasons people choose to refinance – such as buying an investment property, consolidating debt, paying off a home loan sooner or borrowing the extra money needed to renovate or extend. • To begin the refinancing process, you usually need to apply to a new lender, either directly or through a mortgage broker. You can often do this online. • The new lender will want to know why you’re refinancing, how much you want to borrow and the balance on your current loan. They’ll also want to see evidence of your income and expenses, just as they did when you first applied for a home loan. You can read more about what you need to get a home loan here. • When you’ve provided this information, the lender will formally assess your application, including running a credit check. They may also ask for a valuation on your home, especially if you have a high loan-to-value ratio (LVR). • If you’re approved, you’ll receive new mortgage documents that you’ll need to sign. • Then, your new lender will arrange a settlement with your existing lender, in just the same way your current lender and solicitor did when you bought the home. This is when the new lender will pay out your loan to your current lender and take hold of the title deed to your property. • Finally, if you’re borrowing more than you currently owe on your home loan, the lender will deposit any extra funds into your account or wherever you’ve agreed for them to go.
Why refinance? •
When it will save you money. By refinancing you may be able to access a better interest rate than the one your lender currently gives you.
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When it helps you pay off your home loan sooner. By refinancing you may be able to change your loan terms so that you pay it down quicker. You may also be able to access features such as a mortgage offset account or redraw facility if you don’t already have these.
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When you want to reduce your repayments. If your circumstances have changed and you’re finding it more difficult to meet your monthly repayments, refinancing may give you the option to stretch out your loan and bring down your monthly repayments.
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When you want to buy an investment property. Refinancing could let you access equity in your home, which you can use as a deposit towards an investment property or other assets.
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When you’re renovating or extending your home. You may be able to access the money you need, giving you an alternative to taking out a construction loan.
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When you want to consolidate debt. If you owe money on your credit cards or have personal loans, consolidating your debt into your home loan could let you access a better interest rate. Although, it may take longer to pay down the debt.
Is Will refinancing lower your credit score? When you refinance your home loan, you’re applying for a new loan – even if you go through your current lender. This is a formal credit application, known as a ‘hard enquiry’ that gets recorded on your credit history and affects your credit score. Simply making a hard enquiry can cause your credit score to fall. Refinancing can affect your credit score in other ways too. When you’re approved for your new home loan, your lender closes your existing home loan account. And closing accounts may have a slight impact on your credit score. There may also be a negative impact on your credit score if you apply for a home loan with multiple lenders.
Can I refinance with bad credit? Just because you have a bad credit score doesn’t mean you’ll be denied the chance to refinance your home loan. While lenders will always consider your credit history as part of the loan application process, each has its own lending criteria and some may be more inclined to approve your application than others. However, you may need to apply for a non-conforming home loan, which often means also taking out a higher interest rate. If you have a bad credit history, you should always try to get on top of any debt before you apply to refinance. This might include, for instance, trying to pay off any credit card debt and making sure you always pay your bills on time.
Should I refinance or make extra repayments? Both refinancing and making extra repayments could help you pay your mortgage off more quickly. But they’ll do it in different ways. If you’re looking to reduce the length of your home loan through refinancing, you should make sure your new loan term is shorter than your current one. For instance, if you have 20 years left on a 30-year mortgage, make sure that your new home loan is no more than 20 years long. While this may increase your minimum repayments (unless you get a substantially lower interest rate) it will usually save you more money in the long run. That’s because a longer loan term means more interest will accrue on your loan. Take a $500,000 principal and interest loan with an interest rate of 3%. If your loan term was 20 years, your repayments would be $2,773 a month and you’d pay $165,517 over the life of the loan. If your loan term was 30 years, your repayments would be only $2,108 a month but you’d pay $258,887 over the life of the loan. That’s a difference of almost $100,000.Making extra repayments could have a similar effect on your home loan. For instance, if you had the same 30 year home loan for $500,000 at 3% interest and, after five years began contributing an extra $600 a month to it, you could save yourself almost $60,000 in interest over the life of your loan and reduce your loan term by almost 7.5 years.
Information source www.ospreymortgagelending.com