The decision to refinance is made when consumers realise their current loan is no longer suited to their financial situation. Wanting a better interest rate, consolidating all debts into one and equity access are just some of the reasons why people choose to do so. Before going ahead with the decision, make sure you’ve done your homework and sought professional advice to see if it’s the right choice for you.
Once you’ve made the decision to refinance, it is imperative to thoroughly consider all the options available to you, to ensure that it is a worthwhile process to undergo. With the competitiveness of the market, there are constantly offers available that cater to all purposes of refinancing.
Refinancing is when you change your current home loan to a new one that satisfies your current financial situation. It can either be done internally (with the same lender) or externally (with a different lender).
The most common reason consumers choose to refinance is to gain better interest rates. However, make sure you tally up all the fees involved in switching loans to see if you are saving a enough to make the process worthwhile.
Although exit fees were abolished in Australia in July 2011, fixed agreements made prior to this date may still incur an exit fee. Other fees to take into consideration include, but are not limited to, valuation, settlement and establishment fees, as well as paying the non-transferrable lender’s mortgage insurance again if you are borrowing less than 80 percent.
The amount varies for each individual as it is based on income and current financial situation. Using an online calculator can give you a ballpark amount, but for a more accurate figure, speak to a broker.
Refinancing can allow you to access the equity of your home to cover major costs such as school fees or a family holiday. It can also allow you to renovate your property which could in turn add to its value.
February 17, 2016
If you’re swamped with credit card debt and personal loans, it can sometimes help to talk to a professional about debt consolidation. However, you need to be wary. You might end up paying more in the long term and/or reduce the equity in your home.
What is debt consolidation?
Debt consolidation is where you transfer your credit card debt and any personal loans to your mortgage. The advantage of doing this is that the interest rate on your home loan is likely to be lower than you’re paying on your smaller debts. You might also benefit from a regular manageable repayment. However, there are some things you need to be aware of.
Debt consolidation is not debt elimination
Since debt consolidation clears the debt from your credit cards, the temptation is to think that you’ve paid off the debt. But you haven’t. You’ve merely transferred the debt to your mortgage. So, once you’ve consolidated your debts, consider snipping your credit cards in two. Otherwise, you could get trapped in a debt spiral.
Remember the 80% LVR threshold
When you took out your mortgage, you might have been under the 80% loan to value ratio, which meant that you didn’t have to pay lenders mortgage insurance. Be careful when you consolidate your debts that you don’t reduce the equity in your home and have to pay lenders mortgage insurance.
Personal loans aren’t tax deductible
Interest charges on an investment loan are tax-deductible but interest on a home loan isn’t. When you consolidate your debts, you need to be mindful of how much interest you can claim as a tax deduction. Seek advice from a tax agent before making a decision in this area. To learn more about debt consolidation, contact an MFAA member today.
An MFAA Approved finance broker is not your average mortgage broker.
Why meet with multiple lenders when your broker can do it all for you.
Brokers have access to a wide range of lenders and products.
Secure a loan that is suitable for you both now and into the future.