Refinance

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By definition, refinancing any mortgage must be to place you as the borrower in a better off financial position, or to borrow additional funds. Don’t get caught up in the rate speculation and simply undertake a refinance just for a cheaper rate.

It’s important to look at the following points prior to refinancing;

•    If there is an exit cost to refinance, what are they?
•    What is the potential saving by refinancing to another lender?

You can save thousands of dollars by changing products if your existing loan doesn’t meet your current needs, or if you have personal and credit card debts, however the team @ wHeregroup recommend the following;

•    Don’t extend your loan term unless you need to, for example, if you have had your existing loan for 5 years, and you are refinancing, ask your mortgage broker for a 25 year loan, not 30 year loan.
•    If you are refinancing personal and credit card debts, set them up onto a separate split facility so you keep them separate from your home loan, thus aim to pay them off at a far faster pace.

Refinancing your home loan and borrowing against the equity you have in your property can help to fund the purchase of an investment property but the banks will only allow this if your loan is currently less than 90% of the value of your property. If you’re existing lender has a simple structure that is not of benefit when setting up an investment loan structure, refinancing can save you thousands in set up costs by cross securitizing your properties.

A good point to make when consolidating debt and refinancing is to set up two splits in your home loan. One for the exsiting home loan, the other for the debts you consolidated into your mortgage. That way, you can continue to make the same repayments on your home loan, plus by making the same repayments you would have on the personal debts, you'll pay the debt off at a faster rate, leaving you with more cashflow down the track. Take note; a 5 year personal loan repayment is always going to cost you more per month than the same debt paid over 30 years, simple math.

Talk to a professional about refinancing by chatting to a team member at the wHeregroup.

Refinancing to consolidate debt
If you have enough equity in your home, you can consolidate small personal debts and credit cards into one loan, your home loan.

The bank will only allow this if your loan is no more than 90-95% LVR.

For example;
Existing loan;              $400,000
Value of property;        $600,000
Personal debts;           $50,000
Total borrowing;           $450,000
Loan to value ratio;       75%

Keep in mind when consolidating debt; you’re increasing your cash flow because you are extending your loan term. For example, if you are making repayments of $1000 per month, and your loan is a 5 year loan, the minimum repayments will always be higher than if you had the same loan over a 30 year period.

Like to know more?

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