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When Would I Refinance My Mortgage?

Whenever it makes financial sense to do so.

Heard about mortgage refinancing? In the past, most people who took out a mortgage doggedly continued with it until they had paid it off. These days, people refinance their mortgage much more frequently. The average duration of a home loan in Australia now is just 4-5 years. Here we look at some of the reasons people in Australia refinance their home loan.

Mortgage refinancing reasons: lower rate

The most common reason for people to refinance their mortgage is to get a better deal. But be careful you don’t become interest rate-fixated. When you refinance your home loan, you need to consider fees and charges as well as the interest rate. You often have to pay charges for exiting your current home loan, plus charges for taking out the new mortgage. You need to be sure that in refinancing your home loan that you’ll be better off in the long run after taking into account all costs.

Mortgage refinancing reasons: more flexibility

Many people only discover the full details about their mortgage when it’s too late. They try to do something and get told by their lender that either they can’t do it, or they will incur a hefty charge if they do. An example is a redraw facility – the ability to pay extra money into a mortgage and then redraw it later. This feature is not possible with a basic home loan, so many people refinance their mortgage to give themselves this sort of increased flexibility.

Mortgage refinancing reasons: renovation

If you carry out renovations, it often makes sense to refinance your mortgage and take out a construction loan so you only pay interest as building progresses. Once construction is over, it might make sense to refinance your home loan again so that you consolidate the total amount you owe into a loan that minimises your interest bill, while giving you a degree of liquidity.

Mortgage refinancing reasons: home equity

Over recent years in the property market houses have appreciated at a significant rate. e.g. a home you bought for $300,000 five years ago, might now be worth $500,000. Refinancing your mortgage with a home equity loan might let you tap into that extra $200,000 equity.

Mortgage refinancing reasons: defaulting

Some people find they have borrowed more than they can comfortably repay, and they’re in danger of defaulting. There’s no shame in that. But don’t suffer in silence. If you’re having trouble making your mortgage repayments, talk to us about refinancing your home loan to make it more manageable.

 

If refinancing is something you are considering or if you would like more information, contact us today!

What Type Of Loan Is Right For You?

The array of mortgages available helps a good finance broker to tailor a package to suit your needs. Here are just some of the options.

 

Fixed-rate mortgages
With a fixed-rate loan, you know exactly how much you’ll pay per fortnight or month for the fixed period of the loan (usually one to five years).

 

Variable rate mortgages
Repayments can change during the life of a variable-rate loan, so you may pay more or less as interest rates rise or fall. If you’re fairly sure that rates are set to fall, this is a good option.

 

Principal and interest mortgages
In this mortgage, you are paying the amount lent to you plus the interest.

 

Interest-only mortgages
With interest-only, you are paying just the interest on the loan – you are not paying off any of the original principal.

 

Split home loan (fixed and variable)
You can choose to have part of your loan at a fixed rate and the other part can be at a variable interest rate. If rates do fall, the interest will go down on the variable part of your loan, but you aren’t taking as big a risk should rates rise.

 

Redraw facility
If you have a variable-rate loan and you make extra repayments, then you can withdraw that additional money when you need to (you can’t do this on fixed-rate loans).

 

Land loan
A land loan lets you buy a block of land without the pressure to build on it as soon as possible. Land loans are usually variable interest for up to 30 years.

 

Construction loan
For buying land, building or renovating your home, a 12-month construction loan can be the best way to go. Usually, up to 90 per cent of the property value can be borrowed.

 

Non-PAYG loans
For self-employed people, a home loan can still be arranged using differing supporting documentation that shows your ability to service a loan and might include BAS and bank statements. You self-certify your income, which will need verification. You may be able to borrow up to 80 per cent of the property’s value.

 

Equity release
This loan type allows you to convert a portion of your residential property ‘asset’ into cash or an income stream while still allowing you to continue to live in your home.

What Is A Low Doc Home Loan?

A mortgage created for the self-employed.

If you’re self-employed, you may have found it difficult to get a traditional mortgage. Don’t despair. The low doc home loan has been designed specifically for the self-employed.

The dilemma of the self-employed

If you’re self-employed, the goal of your accountant is to minimise your taxable income. Unfortunately, while this means you pay less tax, it creates problems when you try to borrow. While you might know that you can service a loan, your books don’t back you up, or your paperwork may not be up-to-date. As a consequence, the self-employed often find it frustrating to obtain a Home Loan.

Consider the low doc home loan (or lo doc home loan)

While the self-employed often can’t satisfy traditional lending criteria, they can be perfectly capable of servicing a loan. As a consequence, the low doc or lo doc loan was born. Low doc loans don’t require the same level of “documentation” as normal loans. If you have difficulty documenting your financial position with regular pay slips, tax returns or business financials etc, a low doc mortgage could be a good solution.

If you would like to know more or you think this might be an option for you, talk to us today!

When Was Your Last Home Loan Health Check?

Circumstances can change, leaving your home loan less suitable than it was originally. A home loan health check can reveal if you’re paying too much.

What’s involved?

We can do a full home loan health check for you either in person or over the phone. We will check if your loan is still competitive and still suited to your individual needs.

Having an expert do this for you can also take the stress out of the process for you. It is advisable to get this check done at least once a year, or if your circumstances change.

Questions to ask

Be aware of what you want checked. Think about the following when you speak to your adviser:

  • Am I paying an unreasonably high interest rate?
  • Am I paying high fees?
  • Am I happy with the service I receive?
  • Does my loan give me the features I need?
  • Am I paying for features I don’t use?
  • Have my financial circumstances changed

Benefits

A home-loan health check will generally cost you nothing and could save you thousands. Your home loan features could be improved or you could find yourself with a lower interest rate. A better payment structure could also be introduced, making your repayments more manageable.

Checking the state of your current loan could uncover the possibility of taking out additional finance, which can consolidate any other debt you may have or help you purchase an investment property

 

We give all our clients an Annual Mortgage Health Check to ensure they are still getting the best deal suited to them. If you would like a Mortgage Health Check done now, contact us today!

Loan Protection: Borrow Confidently.

Everyday life events can and may impact on your ability to meet your loan repayments. Making you aware of loan protection is my moral responsibility so you can make and informed decision. Its about making sure you can service your loan.

Protect what matters most to you

You owe it to yourself and your family to think about how you can protect your mortgage and your lifestyle. A Loan Protection Plan might be a good place to start if you’re worried about any of the following:

  • how you would repay your mortgage if you were to fall seriously ill or have an injury
  • what would happen to your family if you were seriously ill (or worse)
  • how much cover you might have elsewhere
  • you think you might be covered by your super (It’s estimated that life cover within super is on average only 20% of what is needed. The average insurance amount payable from super is $70,000 – for those who take the default level of cover)

Illness doesn’t discriminate

Here are some of the people that have been helped

Gender Age Reason for Claim Benefit Type Claim  Amount
Female 27 Cancer Living Benefit $102,465
Male 37 Heart Attack Living Benefit $66,836
Male 47 Cancer Terminal Illness $183,584
Female 59 Cancer Death and Terminal Illness $341,136

 

Once you have a home or a investment property, it may be one of your biggest financial assets. You’ve worked so hard to secure it, so it’s worth protecting.

 

If you would like to find out more or get a Loan Protection Plan put in place today and enjoy the first 30 days of cover for free, contact us now!

 

How To Pay Off Your Mortgage Faster

When was the last time you looked closely at your loan, the progress you are making on paying it off and how it compares to others in the market? Analysing your mortgage could mean savings for you, as well as the opportunity to pay it off more quickly, invest in other assets or reach financial freedom sooner.

Make smaller payments, more often

To cut the size of your payments, make more of them. This could even see you pay off your loan faster, and therefore pay less interest overall.

If you pay your mortgage monthly, consider changing to fortnightly repayments. For example, if your mortgage equates to $2400 a month, cut this in half and pay $1200 each fortnight. As well as having more manageable payments to make, by the end of the year you will have paid off $31,200 rather than $28,800.

Pay just a little bit extra

A minimum repayment is just that – for most loans there is no reason you can’t pay more, whether here and there or regularly.

By rounding up to a full number or contributing an extra $100 or even $10, you’ll significantly reduce your mortgage. It may also be worth considering putting all bonuses, tax returns and gifts into your mortgage.

Don’t decrease repayments when interest rates fall

Even if your repayments are lowered when fees and interest rates decrease, it doesn’t mean that’s all you have to pay and, by keeping your repayments at the same level when interest rates are lower, you will pay down more of the principle with each payment and make speedy progress on your loan.

Offset it

If you can, use an offset account. A mortgage offset account is linked to your loan and the interest payable on the loan from month to month is calculated by deducting what is in your offset account from your current loan. For example, if your mortgage is $500,000 and your offset account has $10,000 in it, you will only pay interest on the remaining $490,000.

An offset account will save interest while still giving you access to your savings. It also means investors can preserve the tax deductibility of the mortgage.

Find a better deal

Ultimately, your mortgage needs to suit you and your circumstances, or you will wind up paying too much. If you think your current loan no longer matches your situation, speak to us. We will be able to find the right product for you, as well as negotiating appropriate rates on it.

Of course, it is important to make sure that your lender doesn’t charge fees for extra repayments, refinancing, or any other steps you take in an attempt to save on your loan. We will be able to provide details and make sure you have a loan that lets you pay down your balance sooner.

If you want to pay off your mortgage faster, have a chat with us now, we have the expertise to make sure you aren’t paying too much and are in a loan that suits you.

Case Study: Keeping The Home Despite Family Difficulties

The stakes were high for David and Karen, who were dealing with a child’s ill health and, as a result, extreme financial and emotional stress.

David and Karen were facing a number of difficulties in their life. First, their second child had fallen seriously ill. The family was regularly flying interstate to a Melbourne hospital for the best treatment available, leading them to require time off work. Ultimately, the situation began to take a toll on their finances and they were struggling to juggle their mortgage and three overdrawn credit facilities.

Not surprisingly, it was also taking its toll emotionally and Karen developed depression, which led to further time away from work. That’s when their friends referred them to an MFAA accredited finance broker.

“David and Karen were robbing Peter to pay Paul. Not only were they staring down the barrel of losing their home, but they were battling the very challenging emotional strains of caring for an unwell child and a partner with depression,” their credit adviser recalls.

In such extreme circumstances, the adviser employed the services of a debt collector for the first time. While the fees were hefty ($550 was payable on each refinanced facility, as well as 15 per cent of the total amount saved), it was imperative that the financial stress on the family was resolved as quickly as possible.

“It was a non-conforming situation, so I decided the debt collector was the simplest step to take,” says the adviser. “He negotiated their collective credit card debt down from $48,000 to one payment of $15,000. I then arranged for a property valuation to be done and started to work backwards from there.”

The credit adviser was also able to refinance David and Karen’s home loan, negotiating far more manageable repayments that avoided them losing their home.

“This course of action not only enabled David and Karen to return to full-time work, but also saved their family home,” says the adviser. “They were faced with losing their house and their health, but after working together with a lender and debt negotiator, we were able to turn their lives around.”

David and Karen’s child has recovered and the family is now looking forward to what the future holds.

If you ever find yourself in a difficult situation it’s best to get on the phone and give us a call right away. We can offer you the right advice for your needs.