Are you keen to refinance? There are a few things to consider before you make that switch to a cheaper rate.
Switching home loans is not something to be afraid of. Borrowers on variable rate loans should review their home loan against other loans at least once a year.
Jeremy Cabral from Finder.com.au shows you what steps you should take when refinancing your home loan:
1 - Use a comparison website
Compare your current loan against others on the market using a comparison service. If there are better offers for you on the market, it’s time to investigate how much you could save by refinancing.
2 - Contact your current lender
Once you've found better offers on the market, ask your lender to match or better the offer. Lenders often have a budget allocated towards customer retention, and they may be able to give you a better deal. If you are unsatisfied with their response, then it is time to proceed with the rest of the refinancing steps.
3 - Request your credit file
Before you refinance, it is worthwhile knowing whether your credit record has changed at all since the last time you financed. If your credit record has deteriorated, you may not qualify for some of the better value loans on the market — reducing the savings potential of refinancing in the first place, even potentially leaving you worse off than before you refinanced.
4 - Get your own property valuation
Request a property valuer to conduct a bank-style valuation of your property before you refinance, if you think property values in your area have dipped or if you are anywhere close to an 80% Loan-To-Value Ratio (LVR). If you refinance and your new lender considers your LVR to be at 80% or above, you’ll have to pay Lenders Mortgage Insurance in full again, unless you have a guarantor.
Your property’s value is not what a real estate agent, relative or neighbour says it is. The value of a property will be determined by a very conservative valuation by your lender’s approved valuer in your area. Even if you’ve bought the property recently, the valuation when refinancing may be short of what you paid.
5 - Crunch the exit and entry costs
Contact your lender and request a full costing of exiting your current loan. Add to this figure the fees for entry from your new prospective lender. Calculate whether the interest savings are greater than this cost.
It is also worth double checking that the ongoing fees and charges from your new loan are reasonable. A comparison rate is a decent barometer of an interest rate including ongoing fees — which makes it easier to compare apples with apples.
6 - Think about flexibility and customer service before you commit
While a lower comparison interest rate is a major factor when deciding to refinance, it isn’t the only one. Borrowers report that higher levels of customer service and home loan features are also important considerations. You may want to consider if you want your loan to include free extra repayments, a redraw facility, a 100% offset account or loan splits.
For more information on how to make an informed choice when selecting a home loan, visit: Finder.com.au