Five things you must know about refinancing.

February 23, 2024 BY

Leigh Deledio and Daniel Walsh from UFinancial.

Refinancing is a strategic decision that can potentially save you thousands of dollars, reduce your monthly mortgage payments, and help you achieve both your short-term financial goals and long-term dreams.

However, like any art form, mastering the art of refinancing requires careful consideration, strategic planning, and a deep understanding of the process.

Let’s uncover the essential things you must know to make informed decisions and maximise the benefits.

The refinancing basics

Refinancing involves replacing an existing loan with a new one, typically with more favourable terms.

The primary objective? Saving money. This can be achieved through competitive interest rates, better loan terms, or enticing cash-back offers.

The motivations for refinancing can vary. Some may seek to borrow a higher amount, leveraging their equity for investment purposes, consolidating debt, or even transitioning to a fixed or variable rate option.

Your financial health

The decision to refinance should align with your overall financial goals.

It’s imperative to conduct an assessment of your current financial health, including an evaluation of your credit score, income stability, and debt-to-income ratio.

A solid financial foundation enhances your chances of securing a better deal when refinancing.

Address any potential red flags, such as missed bill payments or credit issues, before initiating the refinancing process.

Costs associated with refinancing

It’s essential to understand that refinancing isn’t free.

Familiarise yourself with application fees, valuation fees, and potential payout costs.

Your mortgage broker can assist you in calculating the break-even point, determining how long it will take to recoup these costs through the savings generated by the new loan.

Additionally, consider potential “break costs” charged by your lender for ending the fixed-rate term prematurely.

Loan-to-value ratio (LVR)

The LVR ratio, representing the relationship between the loan amount and the value of your property, is a critical factor in refinancing decisions.

If your LVR exceeds 80 per cent, refinancing may incur additional costs, such as lenders mortgage insurance (LMI).

It’s essential to assess your LVR before initiating the refinancing process and explore strategies for optimizing your LVR to secure more favourable terms.

Consult with a mortgage broker

Seek guidance from experienced professionals like mortgage brokers, who can provide invaluable insights and personalised advice.

From comparing loan options and negotiating with lenders to ensuring accurate documentation and loan structure set up, a mortgage broker can be your trusted ally throughout the refinancing journey.

Want to see if you’re on the best rate? Check your loan’s health by heading to loantools.com.au/health-check/ufinancial

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