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mortgages

Refinancing - Tips & Traps

Tips to relieve mortgage pain

If you’re currently experiencing financial pain caused by your mortgage, it’s time to see your mortgage specialist.  They can help by prescribing some tried and true remedies to help relieve the stress of borrowing.

Take these for example…

1. Have an objective look at your current spending habits. Are you making it harder on yourself to get your finances in order by paying for unnecessarily costly goods and services? 
   
2. Review your existing mortgage.  Does it still stack up? Consult your mortgage specialist about whether the loan you have now is the most appropriate for your personal situation.  Consider flexibility and fees in particular.  For example, a loan with a discounted interest rate may have been just the thing when you signed up for it.  But once the honeymoon is over and normal interest rates cut in, and it’s no longer competitive on an interest-rate basis, the lack of flexibility many of these loans display can certainly give you grief.
   
3. Loans that allow paying your salary straight in can also provide substantial interest savings.  Generally speaking, home loan interest is calculated on the daily balance and charged at the end of the month.  If you can deposit your pay or other income directly into the loan you can reduce the amount of interest calculated while the pay is sitting there.  This works particularly well if you can take a disciplined approach to credit card use.  Let’s say you get paid in the middle of the month.  Your pay goes in then and reduces the amount of interest calculated each day.  If you use your credit card wisely to take advantage of the interest-free period, you can pay living expenses and many bills with the card, rather than drawing down your salary.  At the end of the credit card interest-free period, you draw down on your home loan and pay off the full credit card balance.  All the additional time your salary has been sitting in the home loan it has been working away to reduce the amount of daily interest.  Plus, depending on the credit card provider, you may also be earning substantial reward points.
   
4. Use one-off payments to chip away at your loan. We’re often tempted to fritter away pay rises, tax refunds, bonuses, bequests and lottery wins.  In many cases, we end up with nothing worthwhile to show for our money. Consider applying at least part of these windfalls to your mortgage.  At the very least, you’ll achieve a reduction of interest calculated and, if the loan has a redraw facility, it may actually provide a bit of a buffer against the time when you’re struggling to meet the loan repayments.
   
5. Consider whether a fixed rate is appropriate for your situation. If the threat of further interest rate increases has worse financial consequences for you than potentially missing out on any interest rate reductions, fixing some or all of your loan may well relieve the pressure.  Your mortgage specialist will be able to help you work out the pros and cons.
   
6. Work out if debt consolidation can give you breathing space. It makes sense to pay down high interest rate debt, such as credit and store cards and personal loans as quickly as possible.  Depending on your circumstances, including whether you have enough available equity in your home and whether there are substantial exit penalties attached to your current loan, you may be able to refinance your existing mortgage, apply for additional funds and pay out the high interest debt at the lower home mortgage rate.
   
   One very important word of caution here.  If you refinance to consolidate credit card debt, make sure you actually pay out your credit cards.  If you’re in any way tempted to build up debt on them again, cut them up.  Many Australians have got themselves into very deep financial waters by borrowing against their homes to pay off their credit card debt and then racking up debt on their cards again, giving themselves very little chance of escaping serious money trouble.

Rising interest rates are causing pain to many Australians.  But with the right dose of sensible money management and a loan health check-up with your mortgage specialist, the prognosis is positive for long term financial well-being. Call Outlook on 1300 657 872 for an obligation free loan health check up today.

Refinancing - tips & traps

These are some of the issues you should consider before choosing this option.

Let’s start with the potential benefits of refinancing: 

1. The new loan may be more flexible, or better structured, or have additional features you value and is therefore more suitable to your needs right now and into the future.
2. You may be able to find a lower interest rate or a more suitable loan term than your current loan.
3. You may be able to fix part of the loan so you can budget for payments more accurately.
4. You may be able to unlock additional equity in your home, which can be used to consolidate debts and pay down the ones with higher interest rates, such as credit cards or personal loans.

Sounds terrific! 

Sure, but don’t forget the fine print.  There can be considerable costs attached to refinancing your loan.  Here are some to factor into your calculations:

1. Loan set-up fees
   These costs can be the same as when you established your current loan.  They may include:
   1. Application fees
   2. Valuation fees
   3. Document preparation, settlement and legal fees
   4. Mortgage Stamp Duty
2. Discharge fees
   Charged by the security holder to discharge the current mortgage (could be up to $300).
   
3. Exit fees
   You may find your current loan has exit penalties, early repayment fees or deferred loan establishment fees.  While the cost of these may not detract from the value you would generate by moving to a new loan, be aware that if your existing loan provided you with a ‘sign-up incentive’ such as an up-front rate discount or very low interest rate, it’s very likely the lender will seek to recoup these and you may find yourself up for thousands of dollars in penalties. 

Faced with the prospect that re-financing could end up costing you thousands of dollars, it’s very important to do your sums very carefully to make sure it does make sense for you to ‘jump ship’.

Checklist – Making refinancing add up.

1. Make sure you have enough available equity in your property to make the change to a new loan possible.
2. Consult a mortgage specialist to work with you to do the sums, assess and present your credit history appropriately and determine the most suitable type of loan and lender.
3. Understand exactly how much refinancing will cost and decide whether incurring that additional expense will be worthwhile. 
4. Be aware of marketing hype.  Take advantage of special offers such as application fee waivers or discounted interest rates only if the loan stacks up for you overall.
5. Take a critical look at your loan in the context of your overall financial position at least once a year to satisfy yourself that it is still doing the job you need it to do.
6. Be guided by your finance adviser, who is familiar with your personal circumstances, rather than be unduly influenced by media hype or ill-informed commentary about financial matters.

 Call Outlook on 1300 657 872 for a no obligation review of your mortgage.