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Things you should know about refinancing

Have interest rates fallen considerably since you took out your mortgage? Has your credit score or financial situation improved so you may be eligible for a lower rate? Would you like to access your equity for an investment or renovations?

These are all great reasons to consider refinancing your mortgage. Refinancing can often be a good financial decision. You could possibly save money on repayments or free up funds to further your investment strategy. Refinancing can sometimes even let you take advantage of more competitive loan products that help you pay off your home sooner!

But before you rush in, you should talk to  professional mortgage brokers.   A good mortgage broker will help you to add up the costs involved and decide whether or not refinancing is the right move for you considering your personal circumstances and financial situation. In some cases, refinancing your mortgage could save you money, but in other cases, it could end up costing you more.

What is refinancing?

Refinancing is the process of paying off an existing mortgage by creating a new one. You can switch lenders entirely, or switch to a more suitable loan with the same lender. It could include combining a primary mortgage with a second mortgage, so that you only have one mortgage to pay and reducing the overall costs.

Refinancing often involves the same processes that you went through to obtain your original mortgage. So it pays to do your research to be sure that refinancing is worth the time and costs, and will help you meet your financial goals.

What costs are involved?

Understanding the costs involved with refinancing is an important part of deciding if this strategy is right for you. Sometimes, the cost of refinancing can substantially increase your loan amount and if this is the case, it could possibly cancel out any savings you might make on a lower interest rate.

Here are some of the costs involved with refinancing a mortgage:

Legal fees – As with your original mortgage, refinancing will involve the services of a conveyancing solicitor, as the same documentation will need to be processed and lodged in order for the settlement of your new mortgage to occur. Fees vary from solicitor to solicitor but are usually within the hundreds of dollars per refinance.  The money you save on refinance over months should recoup that.

Stamp duty – This will be payable for any amount you borrow in excess of the original loan amount. So if you end up borrowing more in the refinancing process, it is likely you will have to top up the stamp duty as a percentage of the extra amount you have financed. The amount of stamp duty payable on refinancing varies from state to state – ask us to help you calculate it.

State government fees – Your conveyancing solicitor can confirm what government fees will be payable in your state. However, most states require you to pay both Registration of Mortgage Fees and Transfer of Mortgage Fees. 

Lender’s valuation fee – Most lenders will require your property to be valued (or re-valued) prior to agreeing to refinance. Your lender will expect you to pay this cost, even though they organise it themselves. They will not accept a valuation provided by you.

Loan application/establishment fees – These vary from lender to lender.   A good mortgage broker should be able to tell you how much this cost will be on the new mortgage you choose.

Exit fees – These fees are often charged by your current lender when you discharge your loan early. They generally apply to fixed rate mortgages and loans entered into before July 2011, but may also apply to other loans as well. They can include a variety of charges like discharge fees, break fees, document retrieval fees and so on. Your loan agreement should outline exactly what fees are payable when you exit your current loan. If you find this confusing, then we can help you discover exactly what these fees would be if you refinance.

Lenders Mortgage Insurance – If you borrow more than 80% of the value of your property, then you will most likely have to pay Lender’s Mortgage Insurance (LMI) when you refinance, to protect the lender in the event you can’t meet your repayments. Even if you already paid LMI on your original loan, it will be payable again when you refinance if you still owe in excess of 80% of the value of the property.

When is a good time to refinance?

If you’re thinking about refinancing for any reason, then it pays to talk to an experienced mortgage broker about your goals and the best way to go about achieving them. Refinancing might be a good idea for you if your financial situation has improved since you first took out your loan, as this may help you get a better rate.

Again, if interest rates were much higher when you first took out your loan, then it’s definitely worth checking out if you could be better off with refinancing, now that rates are at historical lows. If your equity has increased either by paying down your loan or by the property value rising considerably, refinancing may let you access funds for further investment, debt consolidation or for other purposes, like university fees or your children’s education costs.

In all of these cases, it’s possible the benefits could outweigh the costs and refinancing could help you to be better off. In the event that your financial situation has worsened considerably since you took out your original mortgage however, then refinancing should only be considered if you really need to reorganise things to meet your financial commitments.

If your financial situation has worsened, you may find that you are no longer eligible for the best interest rates – so there may be no interest savings to be had by refinancing. However, refinancing may allow you to access equity to eliminate or consolidate debt, reduce your mortgage repayments by spreading them out over a longer loan term, or give you a product that offers more flexibility during the times when your cash flow isn’t good.

Free mortgage review

The mortgage market is currently very competitive with lots of great products on offer, and we’re seeing some of the lowest interest rates for over 50 years. If you think that refinancing your mortgage may be a good move, please give us a call so we can set up a free of charge meeting with a mortgage broker to firstly see you at your convenience to check if it will be a good outcome for you. If you proceed with the refinance and require legal services then we can also assist with the paper work.
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As of 31 March 2023, Rigoli Lawyers was acquired by Michael Benjamin & Associates and many staff and clients joined the team at Michael Benjamin & Associates. Rigoli Lawyers is now incorporated within Michael Benjamin & Associates.