Choosing to refinance your mortgage is a big decision involving a number of complicated factors. If you’re considering taking this step, you’ll need to think about competitive interest rates, how much it will cost and if it will pay off. Each case is different but there are a few key things to think about when making your decision. That is why we’ve compiled a list of things you need to know to be informed and confident about your choice.
What is refinancing a mortgage?
Essentially, refinancing means moving your mortgage from one bank to another. During this transition, the loan with the original bank is paid off and you enter into a new loan with a new lender. In a nutshell, refinancing means you replace the original loan with another to help you save money, or reach another financial goal.
The term “refinancing” is often confused with refixing and/or restructuring. The reason being, that each involves making an alteration to your current mortgage. Let us clarify the terminology and look at the different meanings.
Refixing a mortgage
When your current fixed rate period ends, you have the option to secure a new fixed rate with your existing mortgage provider. In doing this, you are committing to a new interest rate which you will negotiate with your lender and agree not to make any further changes for a fixed period of time.
Restructuring a mortgage
Restructuring means reviewing how your current loan is organized and rearranging it into a combination of fixed and floating interest rates that best suit you. Once you understand more about the structure of your mortgage, you can make informed decisions on how to repay your loan in a shorter time frame than the agreed term.
You can make any number of extra payments to your floating mortgage and save money by reducing your interest payments penalty free. You might also consider off-setting your mortgage to ultimately pay less interest with more of your funds going towards the principal and a faster settlement.
Reasons to consider refinancing
Refinancing is a popular practice because it has the potential to improve a person's financial situation.
Below is a list of the common reasons people have to refinance their mortgage, each of which has its own set of points to consider. Even if you do relate to one or more of these, it’s crucial to get professional advice throughout the process. If you want to ensure the refinancing is worth it, having financial experts and legal advisors to support your decision is imperative.
Possible benefits of refinancing your mortgage:
- You could secure a better interest rate.
- You can access the products or services of another bank.
- You can restructure and review your loan's structure in the process.
- You are able to take out a larger loan and free up extra money.
For example, you may want to book a holiday, invest in a second property, or prepare for retirement. Refinancing could be a great way to achieve these options. Or, you might find that a more competitive interest rate gives you the chance to pay off your mortgage sooner and be closer to financial freedom. It is important however, to remember that refinancing isn’t always the best course of action, so be careful to consider your reasons and timing.
When is the best time to refinance your mortgage?
The best time to refinance your mortgage is when your fixed rate term is about to end, or your financial circumstances have changed. Refinancing allows you to take advantage of these changes and gives you more control over your resources.
For example, you might have had a pay rise, which means you could theoretically pay off your mortgage faster, and a better interest rate will help you to achieve that. Or, if you are wanting to buy an investment property, refinancing can provide the financial boost you need to get there.
Another reason to wait until the end of a fixed rate term is potential cancellation costs. If you cancel a fixed rate payment before the term is complete, many banks will charge you an additional fee, so it is often worth waiting until these are no longer applicable.
How to refinance your mortgage
There are a few steps to take when refinancing your mortgage, and it’s especially important to be informed and prepared. The following guidelines are the key to ensuring your refinancing goes to plan.
Look for the best rates
Though it’s not the only thing to consider, finding a more competitive rate can lead to significant savings in time and money. You’ll have to compare all the available rates and it’s worth keeping an eye on these for a few months before you make any decisions.
Evaluate the costs of refinancing
Knowing how much this process will cost you is crucial because it can often outweigh the projected financial benefits. Once you factor in legal costs, cancellation fees and/or a new home valuation, the final costs to pay could amount to a significant expense. And of course, if you pay more than you gain from refinancing, it’s not worth doing.
Discuss your options with the experts
Your bank and broker are there for a reason and they know this process inside and out. So ask them for their advice, because they’ll have industry experience, helpful suggestions and financial insights to ensure you get the best possible result. We recommend discussing which rates are appropriate for your situation and any projected costs you should expect to pay.
Another thing to consider is the timeframe required to complete a refinance, so plan ahead. Try to allow at least 10 working days from the release of new loan documents to allow appropriate time for your conveyancer to complete the refinance.
Choose the right lawyers
Refinancing requires that you have a lawyer to represent you for the transaction. You should select one that is experienced, knowledgeable and familiar with the refinancing process.
Your lawyer can help you choose your lender and rates, as well as ensure all your loan documents are prepared appropriately. They will also be the point of contact for both you and your lender which means you can be confident that everything is done correctly.
Your lawyer can manage the entire process, including:
- Ensuring all bank documents are signed, complete and accurate.
- Issuing a notice to the original bank.
- Updating the interested party on your property’s title.
- Notifying you and your new bank once the transfer is complete.
If you are thinking about refinancing your mortgage, you’ll want to know you’re in good hands. At Halliwells via Legal Path, we take pride in providing our clients with streamlined legal services to keep stress levels to an absolute minimum.
To know what to expect when refinancing, you can take 2 minutes to answer these few questions and get a free no-obligation quote.
