Refinancing your loan is the process of restructuring your existing lending to achieve further goals.
Their is a number of reasons why you may wish to refinance:
Refinancing could considerably lower your interest repayment if you can achieve lower, more competitive rates. It's important to keep your eye on the market and ensure your existing lending is competitive.
Your loan term may be altered, if you choose when refinancing. If you are under 40 years of age, you may still be able to achieve a 30 year loan term. In saying this, be sure to specify if you would not like to increase your loan term back to 30 years when you refinance. If your loan term has already decrease to 20 years, you may not wish to increase it again.
Interest only is historically a more expensive option in regards to the interest rate. Paying interest only may not be approved by the lender for affordability purposes. Usually, it is only approved if your intention is for investment lending, with a small amount of lenders now open to Interest Only on Owner Occupied lending.
Your age will determine your loan term and the amount you can borrow. Most lenders will assume retirement at age 70 to 75. They may accept your income now with a shorter term (How many years of income until you reach age 70 as an example) . They may also request a short loan term and an exit strategy.
An exit strategy will require you to prove your ability to pay off the property earlier, if you needed/ wanted to retire before 70 years. This would require you to have further funding elsewhere, e.g. Sell another property, Sell down shares or use your super. Of course, your exit strategy need to be able to cover the debt.
What other fees can be expected?
• Transfer fee: The fee charged by the government to transfer the title of your property into your new bank name.
• Registration fees: The Government fee to register your mortgage on the title of your property.
• Home loan fees: Depending on which bank is best to facilitate your refinance, you may be required to pay an application fee, settlement fee or valuation fee. These fees range from no fees to more than $900.
• Lenders Mortgage Insurance (LMI) : Borrowing over 80% of your property value requires Lenders Mortgage Insurance. This is a one-off insurance that protects the lender in the case you default on your mortgage. Loans over 80% are deemed higher risk and for this purpose insurance is required.
We don't recommend an over 80% loan when refinancing as the fees will out way the benefit, in saying this you may be in a situation where it is necessary for example, you may need to access further lending to pay out credit cards, car loans, renovate or another purpose.