How Do You Refinance Your Home Loan - Pearl Financial

How Do You Refinance Your Home Loan

By Shane | Refinancing

May 11

Refinancing your home loan can help you achieve important goals. It can be a great way to access home equity to invest in other areas such as investment property, shares, or managed funds. Refinancing can offer you the chance to take advantage of more flexible features if your circumstances have changed, or if you’ve had your home loan for a few years.

How do you refinance your home loan? 

An important step in refinancing is to know your borrowing capacity. The lender will go through your income, your financial obligations including your current home loan and how well you have managed those obligations in the pastwhen applying for a new loan. All of those will determine how much you can afford to borrow.

Even when you’re refinancing, the key factor lenders will look at when deciding on the amount you can afford to borrow is your income. It should comfortably cover your present living costs as well as the repayments on your loan. Aside from your income, lenders will also look at your present financial situation to calculate how much you can afford to pay. Credit cards and personal loans will also be taken into account.

Play it safe. Most lenders would like to see that you would still be able to keep up with the loan repayments even if interest rates were to go higher. It will be worth taking the same approach to be certain that you could securely repay the loan if rates were to rise at some point in the future.

Choose the right home loan for you. There are hundreds of different loans to choose from but they are all essentially based on two main factors.

  • The amount of money you borrow is referred to as the principal.
  • How much you pay to borrow the money is interest. It is calculated on the outstanding principal.

It’s worth knowing what’s involved with each loan features to make an informed decision. There’s a wide variety of loan features and structures available. Use the comparison rate to evaluate different loans. You may also be charged a range of upfront and ongoing fees along with the headline interest rate charged on a loan. These fees can make it more difficult to compare between loans, and this is where the comparison rate is very helpful. The comparison rate includes any application and regular loan fees as well as the ongoing interest rate, giving you a clear idea of the true cost of a loan and letting you make a more accurate evaluation between lenders.

Make sure that you understand any other fees that may apply because the comparison rate doesn’t include all fees. Government and statutory fees, lender’s mortgage insurance or valuation charges, and event based charges like redraw fees are the other fees that could be included.

Have your paperwork ready if you’ve decided that refinancing is right for you. Getting the paperwork together before speaking with a lender can speed up the loan approval. Above all, you must still enjoy life plus have funds to meet unexpected expenses along the way so better not overstretch yourself.

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About the Author

Shane specialises in helping Gen Y professionals and business owners make an impact by accumulating more assets, generating more income, and having more time to enjoy life. He has a Master of Applied Finance, an MBA, and a Master of Financial Planning. He is also a terrible golfer.

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