Media headlines are encouraging home loan customers request better deals from their lenders or simply ‘vote with your feet’. It’s true we are in a competitive rates environment, so is simply requesting a lower rate as effective as re-financing with a new lender?
Despite many Australians knowing they could get a better deal on their Interest rate, many will avoid the tasks, claiming it’s just too hard. Here are some of the key myths perpetuating procrastination.
Myth 1: Refinancing takes a lot of time and effort
Technology improvements within the loan processing sector have reduced the time and effort it takes to refinance your home loan.
Step 1: Reach out to a Mortgage Broker
To get the best outcome from the discussion – make sure you have the necessary details of your current loan. This includes your current loan balance, interest rate and rate type (fixed or variable), along with your remaining payment term and payment frequency.
Your banking specialist will also need a few details on your financial circumstances – to determine early on whether your loan is likely to be successfully refinanced. They’ll want to know your income, employment details, monthly expenses and any debt you hold (including credit card balances, limits and monthly repayments). If you’re unsure of your monthly expenses, our myVAULT application will keep you informed anywhere at any time.
Avoid being solely focused on the interest rate. Consider other loan features that might be useful to you both now and in the future. Some loans support offset accounts, redraw facilities and extra repayments. Our brokers can help you understand how these features can help you reduce the amount of interest you pay over the term of your loan.
Step 2: Submit your home loan application and supporting documents
If you are ready to realise the savings, your Launch Money Broker will work with you to package and submit your home loan application. The new lender will need to verify your figures – so they’ll ask you to submit some easily located documents that may include:
- Your last two payslips
- PAYG summaries for the last year
- Home loan statements for the last six months of the loan you are refinancing
- If self-employed, you’ll need the last two years of tax returns and full financials for companies or trusts including your individual tax returns and notice of assessments for those corresponding years
- If it’s an investment property: most recent rental statement or your most recent year’s tax return
During the application phase, lenders will also arrange to have your property valued. In many circumstances, a desk top valuation can take place avoiding access arrangements or disturbing tenants.
Step 3: Loan approval and settlement
If your loan application is approved the good news is that you’re almost there. Discharging your current home loan is made simple with a pre-filled discharge authority. Simply sign it and the incoming lender will contact your current lender to complete the process.Given you are the only party to the loan and depending on your current lender’s discharge process, you could be enjoying the savings within 4 weeks.
Myth 2: Refinancing isn’t worth the trouble or expense
Some mortgage-holders might incorrectly believe that refinancing their loan won’t generate savings significant enough to offset the time, effort and expense they’ll go to – but a few simple calculations disprove this.
Sample: A $450,000 principal and interest mortgage with monthly repayments, charging 5% interest, would amount to $419,651 in interest paid over a 30-year term. If we cut the interest rate by just 0.25%, to 4.75%, while keeping all other loan variables the same, interest over a 30-year term falls to $395,069 – a saving of $24,582 over the life of your loan.
Myth 3: I don’t have enough equity in my home to refinance
Typically, you’ll need at least 20% equity in your home to refinance your loan. The more equity you have, the more your loan to value ratio (LVR) may have improved. The better your LVR, the better rate you can secure.
In a market where house prices have been correcting, it’s true that you may not have as much equity in your property as you once did.This could provide you with an even greater incentive to make sure you’re not over-paying on your home loan.It’s also a reason to look at refinancing every two years in a rising market.
After assessing the details of your current loan and conducting a desk valuation of your property, your Launch Moneybroker can often provide you with a clearer picture of whether you’re a candidate for refinancing – before you go to any trouble submitting your supporting documents
Myth 4: It’s too difficult to change banks
If you’ve been with your current bank for some time and have a long list of payees and billers stacked up in your online or mobile banking profile, it can seem like a lot of effort to make the switch to a new bank.
However, you are not required to close all account with your current lender immediately. Most lenders offer mobile app and internet banking to help make the process as seamless as possible.
We believe that the savings achieved by refinancing provide an excellent return for the effort.
At Launch Money we believe we offer an indispensable service and hold strongly to the belief that a mortgage broker is the only party to the process who is best positioned to act as an advocate for the borrower. Our service is more than just securing the lowest mortgage rates, we give you tailored advice to help fast-track your application with the RIGHT LENDER based on your financial goals.
Whether you are buying a new home, personal investment property, Commercial property, SMSF investment property, motor vehicle or thinking about refinancing, Launch Money can help secure a better loan and deliver a hassle-free mortgage experience for you.