We all know that interest rates are at ultra-low levels and that lenders are offering major inducements for us to refinance our home loans with them.
But, did you know that if you just tried to refinance with the cheapest lender you could really stuff-up your finances?
On-line lender makes you do heap of work and, after you have done this, you may not fit their lending policy as in general, the online lenders can only do ‘vanilla’ loans. So, if for example, you are on probation, have been self employed for less than 12 months, or have a high-density property, it’s quite likely they will turn down your refinance application.
Not all lenders have the same policies. Let’s say that you want to refinance your loan and also tap into your equity to get $200k in cash to invest in shares – not all lenders would do this. And of those that do, some may require a statutory declaration from you stating that you know what you are doing with the money.
Some lenders even require written advice from a financial planner to prove you know what you are doing.
If you want this cash, make sure that you leave enough time to get your hands on it. Let’s say you want the money for your daughter’s wedding – or even to pay the ATO some money owed. Once you find a lender that will do it, it will not be an overnight process.
Plan for your refinance to take weeks or months so that you don’t suddenly find yourself short of cash.
One reason that refinances can be so slow is because the outgoing bank normally drags the chain in letting you go; let’s face it, if you were losing a customer’s business, would you prioritise them over an ongoing customer?
Good mortgage brokers know how to work with the discharge team of an outgoing bank to smooth out the process. Frequently I have primed an outgoing bank on what was happening so that, even if they drag the chain, as soon as the new bank is ready to finance the loan, the outgoing bank will do nothing to block them.
Refinancing can save you lots of money, but borrowers also need to go into a refinance with their eyes wide open. Bear in mind that, to refinance, the outgoing bank will charge you a fee for a solicitor to manage the discharge of the mortgage – plus there are a few government charges. All in, you are likely to be charged about $700 just to change lender.
The good news is that some of the bigger banks are so keen for you to refinance to them, they will pay you $1,250 just to switch your home loan to them.
Refinancing a home loan is nowhere near as straight-forward as the adverts imply. But, if done properly, it can have a great impact on your wallet. If you want to know more about how to do your refinance correctly, please contact me on 1300 30 67 67.