Category: Refinance

If you are planning on refinancing your home loan in the near future, make sure you don’t make these mistakes with your debt. This article will go over ways to help you maintain and remove high-interest debt when you are looking at refinancing.

Financial debt can overwhelm a person, especially when it can be easily accessed nowadays by simply filling out a form online. So it is no wonder people are looking for options on how to reduce their current debt or lower the effects it has on their budget.

Consolidate Your Debt Into Your Home Loan

If you have debts, they may be able to be consolidated into your home loan when you refinance. The benefit of this is that you’ll be making a single payment for all the debts you consolidate instead of multiple. This way you’ll also know what the interest rate is as it’ll be your home loan repayment.

Keep in mind that your current debts may have break fees, so it is important to understand whether it is more beneficial to keep the current debt with the current lender instead of refinancing it to another.

It is important when doing this that you change your spending habits if you’re doing to due to financial pressure. Otherwise, you could end up in the same or worse situation.

Get the Loan That Best Suits You When Borrowing

You may not be aware of this but some mortgage brokers are also finance brokers who can help you secure loans beyond your home loan. For example, if you’re looking for a personal loan, we at Read Finance go through the same steps to ensure that the loan we get for you is one that best suits your needs.

Here are some suggestions to think about when picking a new loan to ensure it suits your needs:

• Determine what you need to loan for.
• Ensure the interest rate and fees and competitive with other options.
• Make sure the product is right for you. There are multiple loan options to consider including but not limited to personal loans, secured and unsecured loans, and lines of credit.
• Read the fine print so you know exactly what you are signing up for and the terms and conditions of the loan. This way you don’t get any nasty surprises down the road.

Think Before Co-signing or Being a Guarantor of New Loans

Consider your current and future financial situation before being a guarantor or co-signing any loans. If the borrower fails to pay the loan, you’ll be liable to repay it. 

Since you could be liable to repay the loan, it may also reduce your borrowing capacity depending on a lender’s policies. This is why you should consider the pros and cons of becoming a guarantor and seek independent legal advice separately from other borrowers.

Plan Ahead by Paying More

If you’re planning on refinancing in the future it may be wise to lower your debt over time now. This is because when the time comes to refinance, you won’t have to worry as much about the debt-to-income ratio. A ratio that is used in lending to calculate how much you owe to the amount of income you have coming in.

Depending on your loan terms, it may also be beneficial for you. If you are not able to pay on time at a due date you may not get penalty fees added. Again though, this really depends on the loan’s terms.

Lastly, paying off your debts sooner will increase your cash flow in the future once those debts have been paid off. Allowing you to use those funds for future investments, hobbies or even holidays.

Conclusion

After going through this article, I hope that you’ve gathered valuable insight into how debt can impact your home loan and have learned new ways to manage your debt. Don’t let debt overwhelm you. Ensure you talk to us at Read Finance when looking at taking out or refinancing a personal or car loan so we can find one that best suits your needs.

The news has been posting stories non-stop over the last few months about interest rates rising. A seven-month period in 2022 saw the cash rate increase by 2.75%, causing many banks to pass these increases on to their customers. This has led some people to consider what home loan options are available to them.

A fixed rate home loan is a loan where the interest rate is fixed for a certain amount of time, usually between 1 and 5 years here in Australia. Having a fixed rate is just one of the options available to you. 

Refinancing your home loan to a fixed rate can still be done at any time subject to the lender’s terms and conditions. That said, an optimal time to do it would be when the benefits outweigh the negatives while still being within your financial risk tolerance. Contact your mortgage broker to help refinance your home loan to one that suits your needs.

Why Refinance to a Fixed Rate Home Loan

Refinancing has many pros, but you should also be aware of any cons. Some of these are listed below to help you consider whether it might be right for you.

Pros of Switching to a Fixed Rate Home Loan

• Better Rate – Recent cash rate rises have seen some fixed rates lower than the current variable rate. Interest rates can easily be compared between lenders, but ensure you include any fees that could occur when refinancing.
• Fixed Repayment Rate – If you are worried about interest rates rising, having a fixed rate can give you peace of mind knowing that you’ll be paying the same amount each week, fortnight or month of the fixed rate term, depending on how often you pay. .
• Change Lender – If you’re unhappy with your current lender, you might want to change to another one that might have the support you want, or which has closer branches.
• Consolidate your debts – You may have the option to consolidate your current debts into the loan when refinancing. The benefit of this is that your interest rate may be much lower than a personal loan, credit card, or car loan. 
• Shorten or Extend Loan – It is a great time to review how much you are currently paying, the current timeline of the loan, and your financial risk. Then when refinancing, you can look at extending or shortening the life of the loan.
• Cashback Bonus – Various banks offer an incentive when you refinance your home loan to them. This could range up to a few thousand dollars depending on the size of the loan and various other factors.

Cons of a Fixed Rate Home Loan

• Less flexible – Extra repayments unavailable or capped, may not have access to extra features such as redraw or full offset accounts. If this is important to you, an option to consider might be a split loan with part on a fixed rate and part on a variable rate.
• Rate is locked in – Unlike a variable rate home loan, the interest rate cannot rise and fall. Your rate is locked in initially for the period of time you’ve selected. This is a downside because it may fall well below the rate you are currently paying and there may be a break fee to change back to a variable rate early.
• Fees – LMI, settlement fee, loan establishment fee, mortgage registration fee, loan service, and/or exit fees and charges.
• Break Cost – If you’re not happy with your interest rate, lender, or loan there may be a hefty cost to break your fixed rate loan. This is a good reason to think about how long you plan to fix your rate for if you are planning on refinancing again in the near future.
• Extra Work – It is common that once your fixed rate period ends your loan will transfer to a variable rate. You will need to remember to review your home loan prior to the end date to determine if you want to refinance into a new fixed rate or leave it at a variable rate. Using a confident broker who keeps track of these for you is one way to keep on top of this.

Consolidating Your Current Debt With a Fixed Rate Refinance

You may have the option of consolidating debts you have into your home loan when refinancing. This way you are borrowing against the equity in your home. People look into this because the home loan rate can be a lot lower than credit card and personal loan interest rates.

Not every debt can be consolidated and it depends on the policy of the home loan you have. That is why it is important to have someone knowledgeable like a mortgage broker to help you is important.

Can You Split a Home Loan Between a Fixed and Variable Rate

If you want to be able to have an offset account, make extra repayments beyond a certain amount, or have other features found commonly in a variable rate loan, it may be worth looking into having a split home loan. A split home loan allows you to have two or more different loans of various sizes.

Example:
You could have a home loan of $800,000 total but split into two loans.

• Loan 1: $500,000 – Fixed Rate.
• Loan 1: $300,000 – Variable Rate.

This gives you the features of both a fixed and variable rate home loan.

One reason you would look into doing this is if you wanted the options available with the variable rate while also having the majority of your repayment being on a fixed rate. That way you won’t get a significant surprise if the lender raises your home loan’s interest rate.

Since each lender and their home loans have different policies, you need to have a good understanding of what each of the loans allows you to do. You also want to make sure you know what options you want available in case anything changes in the future for you. It is also good to workshop different scenarios to ensure you make the right choice. This is why it is imperative that you use a knowledgeable mortgage broker who can go over this with you and provide a solution that fits your needs.

Why You Should Use a Mortgage Broker to Refinance

When you use a mortgage broker, you can be confident that they are working in your best interest. Mortgage brokers have a legal obligation to act in their clients’ best interests and to prioritise those interests above their own.

This means mortgage brokers are required to prioritise the costs of a home loan or any other credit assistance they provide to a consumer. They also need to consider items that do not associate with cost but still affect the consumer. If the broker doesn’t believe an option you request is not in your best interest, ASIC expects the mortgage broker to make reasonable efforts to explain why the feature of the offer may not be of good value to you.

This best interests duty does not apply to banks.

Your mortgage broker is well-placed to work with you whatever your unique situation, current and future goals, and financial risk.

What Do You Need to Do

Contact us at Read Finance if you are interested in discussing your refinance options. Click HERE to fill out a form and we’ll get back to you usually within 4 business hours or use the form on our Contact Us page.