What Do I Do To Refinance
The first thing you must do when considering refinancing is to consider exactly how you will repay the loan. If the home equity line of credit is to be used for home renovations in order to increase the value of the house, you may consider this increased revenue upon the sale of the house to be the way in which you will repay the loan. On the other hand, if the credit is going to be used for something else, like a new car, education, or to pay down credit card debt, it is best to sit down and put to paper exactly how you will repay the loan.
Also, you will need to contact your mortgage company and discuss the options available to you, as well as discussing with other mortgage companies the options they would make available. It may be that there is not a current deal which can be met through refinancing that would benefit you at the moment. If that is the case, at least you now know exactly what you must do in order to let a refinancing opportunity best benefit you. When refinancing, it can also benefit you to hire an attorney to decipher the meaning of some of the more complicated paperwork.
Pay Your Home Off Faster
You could refinance into a loan with a lower interest rate and a shorter term. The savings in interest payments could be substantial, for example, if youre able to refinance into a 15-year mortgage from a 30-year loan. Still, if youre putting more cash into paying off your mortgage, you could have less money on hand for expenses like saving for retirement, college or an emergency fund.
Consider A Secured Credit Card
You might not qualify for a loan or traditional credit card. A secured card can allow you to build credit when you need to. You leave a deposit with your lender when you get a secured card. That deposit then becomes your line of credit.
For example, a lender might require a $500 deposit to open a card with a $500 limit. Your lender holds onto your deposit until you decide to close the card.
From there, a secured credit card works just like a normal credit card. You make purchases using your card and pay them off with interest each month. Then, your lender reports your payments to the credit reporting bureaus, which helps you build your score. Your lender keeps your initial deposit if you dont pay your bills.
Secured cards offer a fantastic way to build credit when you might have none, but remember that you must still make your payments on time. Just like an unsecured credit card, missed or late payments will hurt your score.
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Next Steps: How To Get The Best Refinance Rate
Once youve determined why you want to refinance and the type of loan you want, youre ready to shop lenders and compare refinance rates. Get quotes from at least three mortgage lenders, including a mortgage broker, a bank and an online lender. Be sure to compare their rates as well as fees and other charges that could add to the overall cost of the loan.
Why Refinance A Mortgage
Depending on your financial circumstances or current interest rates, there are several ways refinancing could be beneficial to you.According to the Zillow Group Consumer Housing Trends Report 2018, 43% of homeowners refinanced to reduce the size of a monthly mortgage payment. The same report said that 19% of homeowners refinanced their mortgage because they wanted to reduce the length of time on their loan and 4% wanted to change their loan type.
Here are the common reasons to refinance:
- Reduce monthly payment
- Shorten the length of the loan
- Change rate type
- Draw cash out to pay for other expenses or debts
- Cancel mortgage insurance premiums
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Refinance To Lower Your Mortgage Rate
To determine if you can save money with a lower mortgage rate, use our calculator to compare the monthly interest savings against the cost to refinance. As most mortgage brokers and lenders will cover your legal costs, the main cost you need to worry about is your break of mortgage penalty, or prepayment penalty. This penalty is charged by your lender for breaking your mortgage contract early and is based on your original contract date, current mortgage balance, mortgage rate, and other factors.
Locking In Your Interest Rate
After you get approved, you may be given the option to lock your interest rate so it doesnt change before the loan closes.
Rate locks last anywhere from 15 60 days. The rate lock period depends on a few factors like your location, loan type and lender. If your loan doesnt close before the lock period ends, you may be required to extend the rate lock, which may cost money.
You might also be given the option to float your rate, which means not locking it before proceeding with the loan. This may allow you to get a lower rate, but it also puts you at risk for getting a higher one. In some cases, you might be able to get the best of both worlds with a float-down option, but if youre happy with rates at the time youre applying, then its generally a good idea to go ahead and lock your rate.
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Ready To Refinance Your Home
Are you thinking of refinancing your home loan? Consider using our online home loan comparison service to start your search for a new loan! Our service includes products from over 40 lenders and makes it easy to compare the interest rate, comparison rate, repayments, introductory offers, fees, and other features .
You can customise your search to meet your specific financial needs and circumstances, so youll know youre getting a personalised result. If youd like to speak to a home loan expert over the phone, call .
So, what are you waiting for, compare home loan products today!
How Much Does It Cost To Refinance A Home Loan
Refinancing will cost you money. However, the costs may vary depending on your circumstances. Some common costs may include:
- discharge fee : an administration fee that covers the lenders legal costs
- application fees: a fee for processing and assessing a new loan application
- valuation fees: a fee that covers the costs of valuing your property
- a mortgage registration fee: a cost for registering the lenders mortgage on your propertys title
- lenders mortgage insurance : generally, only applicable for loans with a loan-to-value ratio of 80% or more. Its insurance that protects your lender if the sale of your home doesnt cover the outstanding amount owed on your home loan or if you cant afford to make your repayments
- ongoing fees: regular administration fees that can be annual or monthly
- break or exit fees: a penalty fee that may be charged by your current lender for terminating a fixed-rate loan contract early, i.e. prior to the end of the agreed term and
- additional costs: may include costs for title searches, title insurance, surveys, taxes, credit report charges and more.
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How To Find The Best Refinance Rate
When looking for refinance rates, know that your specific rate may differ from those advertised online. Your interest rate will be influenced by market conditions as well as your credit history and application. Having a high credit score, low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates. To get your personalized refinance rates, you’ll need to speak with a mortgage professional, as the rates you qualify for may differ from the rates advertised online. And don’t forget about fees and closing costs which may cost a hefty amount upfront. It’s also worth noting that in recent months, lenders have been stricter with their requirements. So you may not qualify for a refinance — or a low rate — if you don’t have a solid credit rating. Before applying for a refinance, you should make your application as strong as possible in order to get the best rates available. The best way to improve your credit ratings is to get your finances in order, use credit responsibly and monitor your credit regularly. Also be sure to review offers from multiple lenders in order to get the best rate.
Things You Should Know
*The information provided is intended as general information only and has been prepared without taking into account your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation or needs. You should consider obtaining personal investment, taxation and/or legal advice before making any decision. Please read the relevant terms and conditions and Product Disclosure Statement to decide whether a product is right for you. To approved applicants only. Condition, criteria and fees apply. Target Market Determinations for applicable products issued by Heritage Bank, can be located at www.heritage.com.au/TMDfrom 5 October 2021. Information could change without notice.
We acknowledge and honour the Traditional Owners of the land on which we meet, work and live. We pay our respect to Aboriginal and Torres Strait Islander cultures and to Elders past, present and emerging.
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Know Why You Want To Refinance And What Are The Benefits
Before you apply, it is important to understand why you are refinancing. Being clear on what you want to achieve will make it easier for you to ask the right questions of lenders and choose the outcome that suits you.
There are many reasons you may wish to refinance:
- Take advantage of a lower interest rate or reduced fees.
- Seek a better customer experience.
- Borrow more for a renovation, investments, or a new car.
- Compare your options once a fixed rate home loan ends.
- Reduce your repayments.
- Add features such as an offset account or redraw facility.
- Incorporate other products such as: credit card transaction and savings accounts or insurance.
- Establish flexible terms such as a repayment holiday.
Taking a moment to reflect on the reason you want to refinance can be helpful in achieving the outcome you want.
How Much Does It Cost To Refinance Your Mortgage
Your Closing Disclosure tells you exactly what you need to pay at closing. Here are a few of the closing costs you might see when you refinance:
- Application fee: Some lenders charge an application fee due when you apply for your refinance. You must pay your application fee even if the lender rejects your refinance request.
- Appraisal fee: Most lenders require appraisals before refinancing. Most appraisers charge $300 $500 for their services.
- Attorney fees: In some states, an attorney must review and file paperwork for your loan. Attorney fees can vary widely by state.
- Title search and insurance: Your lender may require another title search when you refinance your loan.
Expect to pay 2% 3% of your loan balance in closing costs. You may be able to roll your closing costs into your loan balance, depending on your lenders requirements.
Get approved to refinance.
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Is Refinancing Worth It
If it frees up money in your monthly budget or reduces the overall cost of the loan, refinancing is well worth the work and money.
Theres no one correct path to do it, however there are a variety of ways to refinance your mortgage. You might want to switch from an adjustable-rate mortgage to a fixed-rate loan that has a steady monthly payment, or you might want to shorten the term of your loan from a 30-year to a 15-year and save yourself a bundle in interest charges. You could also simply move from one 30-year mortgage to another 30-year mortgage with a lower rate.
Additionally, refinancing presents a way to get rid of private mortgage insurance after you have accumulated 20 percent equity in your home.
Many homeowners opt for a straight rate-and-term refinance that lowers their interest rate and gives them a comfortable repayment term. Some want a lower monthly payment to free up money for other expenses, such as college tuition or an auto loan.
While rate-and-term options should help you save money, a cash-out refinance can help you borrow more of it. With this approach, youre able to take additional cash out with the new loan that can go toward other financial moves, such as paying off credit card debt or for a big home remodeling project.
Factoring In The Costs
Once you know what the costs of refinancing are, its a matter of just doing the math. If youre doing a rate/term refinance with the goal of lowering your payment, simply divide your cost to close the loan by the amount youre going to save every month.
This will tell you the amount of time to stay in the house in order to break even on the deal. If you see yourself moving before you reach breakeven, refinancing may not be a great option.
As an example, if refinancing lowers your interest rate and saves you $50 per month on your payment, but it has $5,000 in closing costs, you would need to stay in the home 100 months a little over 8 years to break even. If you were to move out before that point, refinancing isnt right for you under the terms of that deal. Its a matter of balancing the cost against both your plans for the refinance and your long-term goals.
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Apply With At Least Three Lenders
According to the experts, you dont need to limit yourself to one potential mortgage broker or lender when youre submitting your applications. Consider talking with several lenders and brokers. McBride says three is a good number of lenders to speak with and get loan estimates from.
This advice is especially important if your credit rating is not quite as good as it could be. Each bank has its own criteria for determining who to lend to. If one bank turns you down, another may not. You may also find the rates at one to be preferential, but the only way to know which bank is the best fit for your loan is by applying to more than one.
Aim to evaluate different lenders within a short period of time. Once you initiate a credit inquiry for a mortgage refinance, you then have 14 to 45 days to have additional credit pulls from competitors without negatively impacting your score. Multiple mortgage loan credit checks will be counted as one check if performed in that window.
Example Of A Mortgage Refinance
Lets say you took out a 30-year mortgage for $200,000 at a fixed interest rate of 4.75 percent. Your monthly payment is $1,043. Over the life of the loan, youd pay $375,586.08, which includes more than $175,586 in interest.
Three years into the loan, youve paid $10,006 toward the principal and $28,596 in interest. Now you want to refinance the remaining $189,994 of your principal balance with a new 30-year fixed-rate loan at 3.5 percent.
Your new loan would slash your monthly mortgage payment to $853 per month, giving you an additional $190 of wiggle room in your monthly budget. Over the life of the loan, youd pay $307,136, of which $117,142 would be interest. Add in the $38,602 in principal and interest you paid in three years on the previous mortgage, and your total cost will be $345,738.
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How Does Mortgage Refinancing Work
When you refinance, your current loan gets paid off and replaced by a new one with different terms. In the transaction, several things about your loan could change, including your interest rate, the length of your loan, the loan balance itself and even the type of loan you have.
When youre refinancing, the loans break down into the following two categories. Which path you take depends on what you want to accomplish through the refinancing process.
How Old Will You Be When The Mortgage Is Repaid In Full
One downside to refinancing is that if you sign up for a new 30-year mortgage, youre restarting the clock until youre mortgage free. If youre already seven years into a 30-year loan, you may not want to start over again with 30 years to go. This is especially true if the new timeline would mean youre carrying debt into your 60s when youre likely going to be thinking about retiring.
Its possible you could pay more than the monthly minimum to shave time off the repayment term, but this should be a consideration as well. Alternatively, you can refinance to a 15-year mortgage.
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How To Apply For A New Home Loan
Hopefully your research has revealed the right loan and terms to suit your needs and goals. It is now time to put in your application. This may be done online, via a broker, or by filling in the paper application form your lender provided you. Its important to have all the information and supporting documentation the lender requires to assess and ultimately decide whether to approve your application.
This information will include:
Once the lender has these details, they will also ask your permission to conduct a credit check to ensure your financial records match those youve provided.
Its a good idea to prepare any other information and verifying documents that may show you are a person of good standing and can comfortably repay the loan required. This is particularly important if its not obvious from the other information supplied that you can service the loan if youre self-employed, for example.
The new lender may also ask for information regarding other products or services you would like.
Once approved, your new lender should send you a new contract and mortgage documentation. As with any contract that involves large sums of money, you should seek independent legal advice before you sign. Even then, make sure you personally understand any terms conditions in the document.
Once you have signed the documents, your new lender will usually organise paying out your old lender and transferring the mortgage and any other accounts you are transferring.
