Refinance Rates
Refinance is a financial tool investors and home buyers use to enable them to acquire a new loan at a better refinance rate. It is used predominantly during time of falling interest rates generally but is also quite commonly used to generate a cash income when the borrower wants to take advantage of any equity that may have accumulated on the property value in the borrowers favour.
Put simply, refinancing occurs when a borrower makes a favourable application for a loan secured on the property for the purposes of paying off a new loan secured against the same property. If the original loan had have had a fixed interest rate applied to it from which the borrower wanted to escape, for a better refinance rate, then he or she would make application for a new loan at the better rate.
Dangers of refinancing.
Although the refinance rate may be quite attractive to the borrower at the time, it must be remembered that interest rates are continuously changing, therefore falling rates will rise again one day and you must be confident that the cost of refinancing through the payments of exit fees and other new loan expenses is worth the while. It may work out that it will cost you more in fees etc. than you would benefit from obtaining the lower rate.
The benefits of equity.
As your home is most likely the biggest financial transaction you will get to make in your lifetime it stands to reason that your monthly repayment on the mortgage is the biggest outlay you make each month.
When the time arrives that house prices have risen in your neighbourhood and you have paid a considerable amount off your original mortgage, you can find yourself in the pleasant position of being able enjoy improved refinance rates that have become available. You will be able to take out a new loan and at the same time lower the interest you are paying monthly while pocketing the extra equity you have earned through the better property valuation having occurred.
Lower repayments.
When you first purchased your home you may have been subjected to having to negotiate the mortgage under completely different circumstances than you find yourself in today.
Circumstances in which:
- Your credit rating may have been much more shaky than it is today.
- Your deposit may have been all you could have scraped together at the time.
- Interest rates may have been much higher than they are today.
Factors that will influence your decision to refinance may well include the following:
- You are now more settled into your career and your income has improved considerably.
- Instead of having to worry about scraping together a deposit the equity you now have in your home can reverse the roles and the bank can pay you a significant amount.
- You can now take advantage of lower interest refinance rates.
Shortening your mortgage.
You may find that you can lower the length of your original mortgage by many years and therefore save many thousands of dollars in interest repayments by refinancing your home loan. And if the refinance rate is lower you could also agree to keep paying the same amount off your monthly repayments which would mean you will be paying more off the principal and again building the equity in your home faster.
Refinancing Costs
Some Costs of Refinancing May Include
- Having to take out a home loan with a longer term.
- Fees charged for exiting the first mortgage.
- Application costs in the taking out of the new home loan.
- Stamp duty and any conveyancing fees.
It is important in calculating the benefit in obtaining better refinance loan rates that may be available on the new loan, to also consider these up-front and other costs involved in obtaining the better refinance mortgage rates that you aspire to achieve. Your decision will often mean you will be in debt for a much longer period, often many years longer.
Most fixed loan mortgages have penalty provisions to discourage early repayment that a borrower has to pay before he or she can access better refinance mortgage rates of another home loan as well as containing a further fee for closing the loan early. There will also be a further cost on the actual refinancing transaction itself.
All these fees must be calculated before you can be certain you will get an advantage in having your mortgage refinanced, whatever the reason you are doing it for. As these extra imposts can fully wipe out any advantage you may have thought you could have otherwise obtained.
Two Main Loans to Consider When Refinancing
Even though you will be subjected to dozens, maybe even hundreds, of different home loans, all with differing features, there remains only two basic mortgages that really matter. These are;
- Fixed rate home loan. Here the interest rate is fixed for a certain period. Usually from one to five years, after which the loan will revert to a variable home loan or a new fixed rate for a further 1 to 5 years will have to be negotiated.
- Variable rate home loan. A variable rate home loan allows for the lending authority to alter the interest being charged on the loan to better reflect the interest rate set by the Reserve Bank from time to time. This type of loan is better in times of falling interest rates but can become a problem if rates rise for any considerable period of time.
Whatever the advantages in refinance rates you still must do your sums thoroughly and be convinced that the refinancing you are contemplating is right for you.
If you want to learn more about refinance rates please contact us and we will be pleased to help.
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- Home Loan Refinance Rates
- Cash Out Mortgage Refinance
- Refinance Options
- Refinance Real Estate Loan
- House Mortgage Refinance
- Best Refinance Company
- Best Refinance
- When to refinance Your mortgage
- Bad Credit Mortgage Refinance
- How to Refinance an Existing Mortgage with HSBC
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