Best refinance mortgages

Experts agree that the time is right for borrowers with fixed-term mortgages to refinance their mortgages. Refinance may bring more benefits than a decrease in monthly payments. If done right, this strategy can help homeowners make better financial choices.

What is mortgage refinancing?

Refinance allows homeowners to transfer from one loan to another. For homeowners looking to lower their monthly mortgage payment, refinance is an attractive option. Refinance can lower the interest that borrowers pay and make it easier to repay their home loan over a shorter time.

Refinances can be a great option for mortgage holders looking to obtain a flexible home loan with features like an offset account and redraw. This allows them to manage their monthly payments more easily. 

There are two options for borrowers: They can either refinance with their existing lender or switch to another lending institution. If the former option is chosen the new lender will repay their existing lender with part or all of the funds from their new home loan.

What are the benefits of mortgage refinancing

Experts agree that refinancing your home loan is not always about getting lower rates. This strategy could also be used by borrowers to improve their financial management. These are just a few examples of the many benefits mortgage holders have when refinancing.

1. Monthly payments decreased

Low monthly payments can allow borrowers to save hundreds of dollars every month, which helps them pay down their mortgages faster. The money can be put in savings or invested for another purpose by homeowners.

2. Equity access

Refinancers may be able to sell equity they have accumulated over the years in the homes they own. If mortgage holders plan to improve the value of their home or invest in property to generate passive income, they can release this equity. Borrowers can also take out a cash-out refinance for personal spending such as funding a child’s education or purchasing a family car. For a cash-out refinancing, however, homeowners need to stay within their lender’s loan-to-value (LVR) threshold.

3. Consolidate your debt

Refinance mortgages is a way for borrowers to manage their debts. If homeowners have enough equity, they can combine all their debt into one repayment. They won’t have to pay it off in smaller amounts. Consolidating debt can help homeowners reduce interest rates and simplify finances. 

4. You can save your home if you have mortgage arrears.

Major life-altering events such as illnesses, unemployment, or loss of a loved one can often hamper a person’s ability to meet financial commitments. Homeowners who are in arrears with their mortgage can get refinanced to avoid losing their homes. You can do this with a specialist lender or non-conforming lender. This strategy does come with higher interest rates.

5. Transfer from a home loan with high-interest rates for bad credit to an unsecured prime loan

For borrowers with low credit ratings or excessive debt, a home loan may be possible. However, the interest rates can often be higher. For those with higher credit ratings and who can qualify for a mortgage with a lower interest rate, refinance is an option.

What is the cost for mortgage refinancing

Refinancing a mortgage is quite similar to applying for a home loan – there are several fees and charges involved. Experts suggest that borrowers compare the cost of refinancing with any costs before making a final decision. Refinance costs can be quite low when compared to the savings that they will get from having lower interest rates for the loan’s life.

Here are some possible costs for borrowers when refinancing.

For a new loan, there are fees upfront

New lenders might charge upfront fees such as a loan application and settlement fee. This is to cover the mortgage cost.

Valuation fee

Just like when purchasing a property, the new lender will ask a professional to perform a valuation of the refinancer’s property. Refinancers may be subject to a fee.

Discharge fee

Lenders might charge a fee to remove borrowers from mortgages.

Break cost

The break cost will be applied to any borrower who does not refinance their loan during the term. Higher fees will be charged to homeowners who have a fixed-term loan. Experts recommend homeowners wait to refinance until the end of the fixed term to avoid paying a break cost.

Government fees

Refinance mortgage borrowers may have to pay fees to the government to clear their home loans and register a new one. There may be a stamp duty.

Lenders offer mortgage insurance (LMI)

LMI applies to all borrower who has less than 20% equity, regardless of whether they paid it in the first mortgage. This tool can calculate your LMI cost. LMI Calculator

What banks offer the best refinance rates?

Home loans vary from bank to bank, and often the best way to determine which ones fit a refinancer’s financial situation is by comparing interest rates, loan features, and mortgage repayment terms.

Experts believe that lenders will offer lower interest rates to homeowners who have equity in their home. Borrowers should examine their home loans at the least every two years to ensure they are getting the best deal.

Mozo.com.au recently revealed the top lenders for home loan refinance. These figures are based on the online comparison site’s 6 January data.

Refinancing is a good idea.

Refinancing a home loan is a great way to save money. Refinancing can be more expensive in certain situations. Here are some examples of situations when mortgage refinancing might not make sense.

Exorbitant break fees

Fees will be assessed to homeowners who choose to refinance within the timeframe. Sometimes, breaking a fixed rate mortgage is too costly. Before refinancing, homeowners should wait for the fixed rate to expire.

Equity is less than 20% of the property’s worth

Even if they already paid LMI on their first home loan, refinancers may be required to pay the insurance again if they need to borrow more than 80% of the property’s value. LMI is often the biggest expense in refinance, much like when you buy a house. LMI can be too expensive to refinance. For more information, see Should You Refinance to Access Your Home Equity?

Current rate is quite low

If your home loan rate is low, refinancing might not be an option. Refinance fees, as well as other upfront costs, can lead to higher costs for borrowers.