When Is The Right Time To Refinance?

The federal government's announcement on 25 March, 2011, that home loan exit fees are banned from July 1, 2011, onwards is causing confusion with a number of borrowers who are trying to decide whether to switch now or later.

Many are unsure whether it will be more beneficial for them to wait until this expiration date passes before committing to a new loan, says Australia's largest independently-owned mortgage broker.

The answer? Timing isn't the real issue. Finding the home loan situation that works best depends on the new lender and product they choose to match their financial situation, lifestyle and goals.

Mortgage Choice spokesperson Kristy Sheppard said, "Borrowers considering switching to a new product with the same lender or refinancing their loan to a new lender altogether should note the government's abolishment of mortgage exit fees applies only to home loans approved after July 1."

"If your home loan has an exit fee and/or you switch to such a home loan before 1 July, you may have to pay that fee after the abolition date has passed- but only if moving to a new product within the period outlined in the contract. In comparison, if refinancing after July 1 you need to consider exit fees only if one is attached to your existing home loan because the new loan will be exempt.

"Given the wide variety of special offers and incentives in today's competitive market, potential refinancers must ask themselves: will I miss out on the home loan best suited to me because I was worried about possibly coming across an exit fee down the track? Our recent refinancers survey* found 46% didn't pay exit fees and 22% paid $500 or less.

"Two other important points are that the exit fee ban does not include break costs, charged when borrowers switch or repay their fixed rate loan before the fixed term expires, and a number of lenders have already removed exit fees from their home loans. Some never had exit fees.

"So, many people need not be concerned about the July 1 deadline, however it's best to be informed and understand the fine print. Exit fees should be part of the consideration equation but not the sole basis for choosing to refinance or stay put. It is important to factor in all aspects of a loan. A professional, experienced mortgage broker can help with this."

Borrowers should also consider the:

* New loan's interest rate - will refinancing help you lower your repayments?

* Availability of features - does the new loan offer you the ones you need (eg. the ability to make extra repayments, an offset account or redraw facility) and are there costs attached?

* Pros and cons of a fixed rate versus a variable rate loan - given interest rates are often volatile and with rises expected next 12 months how will you tackle higher repayments?

* Difference between principal and interest repayments as opposed to interest only - which best suits your investment strategy?

* Other fees such as loan registration and account fees, lenders' mortgage insurance and stamp duty expenses - will the new loan cost you more than it is worth?

For more info visist Mortgage Choice

* Completed in August 2010, the Mortgage Choice 2010 Refinancers Survey asked a range of questions to 1,028 Australians who refinanced their home loan in the last 12 months.

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