If your job situation is unstable now is probably not the right time to refinance your loan. You may instead qualify for financial support from your lender, such as deferring your mortgage repayments for up to six months. You also may be able to arrange to defer payments for bills or take advantage of the various government assistance packages on offer.
But if it’s all secure on the job front there are definitely many advantages of refinancing including:
1. Reducing your repayments
The first thing I recommend all my customers do when they come to see me is to try to negotiate a more competitive rate with your existing lender. All it takes is a phone call. With rates at an all-time low most lenders are willing to at least reduce your rate a little.
Often they will not offer as good a rate as if you were a new customer and if this is the case in your situation, it may be better to change lenders. Let me help you work out if you will be better off after taking into account any fees that you will incur.
2. Obtain cash out using equity to renovate or invest
With extra time on your hands is it time for a project? That bathroom or kitchen you’ve been thinking about renovating for ages, maybe some garden landscaping or painting the house? Or even something bigger – now might be the time to get plans drawn up and submitted for approval while you can.
Accessing the equity you have possibly built up is always a possibility. Equity is the difference between the value of your property and the balance of your mortgage. You can access up to 80% of the value of the property when refinancing and then use this money to do those renovations you’ve been putting off, potentially adding even more value to the property.
Using the funds to invest is another (more risky) option although with the market fluctuations currently occurring make sure you get some professional investment advice before attempting this!
3. Get a loan with more or less features or greater flexibility.
A loan from a different lender may allow you more features such as an offset account, additional repayments and redraw facilities or less features (e.g. a Basic Loan). If you don’t really need these options you shouldn’t have to pay for what you don’t use. You could also look at changing your repayments from P&I to Interest only or take a split rate options with a percentage Variable and some Fixed. Even something simple such as changing repayments from monthly to weekly could help you pay off your loan faster. If your current lender doesn’t offer you what you want from your loan, you could consider refinancing with a lender who can. Certain loan features may offer you more flexibility and/or help to save you money.
4. Refinancing a home loan to consolidate debt (other loans and credit cards)
Another valid reason to refinance is to consolidate other loans and debts into a single and possibly reduced payment. This can be useful when you have high-interest rate loans and debts like credit cards, personal loans or car loans. Your refinanced home loan will be replaced by a new one that incorporates the amount these debts. You just then have one repayment which is often less as the loan term may have been extended.
However, it's important to note that debt consolidation can come with some downsides too. It could turn a short term debt like a personal loan into a long term debt (your mortgage), and that means paying interest on the balance for a longer period which may cost you more in the long run.
Don’t forget to take into account the costs of refinancing
There will be costs involved in refinancing, depending on your lender. In most cases there will be a Discharge fee and there may also be an exit or break cost fee for leaving your current loan contract early if you have a Fixed Rate loan.
There will also be some government charges. Generally speaking the Discharge fee and Government fees add up to around $600 but this depends on the lender you are with. There can also be upfront fees for your new Loan application although these are often minimal. So you do need to be at least $600 better off to cover these refinancing costs. Speak to me and I can help you work out what these costs are for your individual situation to see if it is worthwhile.
But I can’t meet face to face?
And there is no need to be concerned around face to face meetings. Refinancing can be arranged via video conferences, online or over the phone. The easiest thing to do is give me a call and we can have a discussion about your options, your longer term goals and what is the best way forward for your situation.
Don’t forget that if you want to take advantage of these cash rebates, they finish soon so pick up that phone and give me a call. I can be reached on 0411 849 804.
It’s been a very unusual couple of weeks as we all come to terms with the current COVID-19 situation.
With many people losing their jobs or working from home and social distancing, none of us know how long this will go on for.
There can be a huge amount of anxiety caused by the ongoing uncertainty and it’s important to check in with each other to support each everyone in this difficult time.
As far as paying your Mortgage, there is help on offer. All lenders have come up with support and ‘hardship’ arrangements and it’s important to know what these mean and how it may impact you now and in the future.
Most lenders are offering at least three months where repayments are not required simply by contacting them and making them aware of your situation. Some are offering a further three months after a check in point at the three month mark.
Do keep in mind when taking up these offers, that a 'repayment holiday' does not mean that your interest has been waived. The repayments (interest) are simply being deferred. The interest will be capitalised – i.e. be added to the loan. At the end of the deferment period either the loan term will be extended (e.g. from 30 years to 30 years and 3 months) or your repayments will increase to ensure the loan is repaid in its original loan term. It’s not something you would just do for the sake of it as it could add interest to your total loan cost.
But if you are struggling to make your repayments or know you will be in the future, do not be afraid to contact your lender and ask for help. I can help you prepare for the call.
Rest assured that these arrangements are NOT reported as defaults and will not impact your borrower’s credit score or your future lending abilities.
Some other options available to you are:
1. If you have funds in redraw or Offset accounts, you could consider using these up these funds first.
2. If you still do have a job, you could consider refinancing to take advantage of cheaper rates (there are some very competitive fixed rate on offer at the moment), a new interest only term or one of the current cash back rebates (up to $4,000) available.
3. Access your superannuation. Details of this below.
Australians suffering financial hardship during the coronavirus crisis will be able to access up to $10,000 of their superannuation early. They will be able to access up to $10,000 this financial year and $10,000 next financial year. Eligible people will be able to apply to access their super accounts through MyGov before July 1 2020. After that, they will be able to access another $10,000 throughout the next three months. The withdrawals from superannuation will be tax free - and available to people on benefits and to sole traders and casuals who have lost 20 per cent or more in working hours or income as a result of the coronavirus crisis.
You can seek to access government support first and only access your Super as a last resort. Using Super as “free money” now could severely impact future earning capacity of your fund. It would be a good idea to seek Independent Financial Advice if you decide to take this option, so you are fully aware of the implications.
But sometimes you do not have a choice and you need to do whatever it is that helps you get through this difficult time.
Here at Volare Home Loans we hope that you, your family and friends look after yourselves during this challenging time. Keep yourself safe and healthy and we will get through this.
Please give me a call if you would like to discuss any of this further or if you have any questions. Take care and be safe.
Catherine Thompson, Principal, Volare Home Loans
Message from CAtherine
Occasionally I come across an interesting article to do with Home Loans. I thought I'd share some of these with you here.