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Essential questions to ask your mortgage broker before refinancing. Learn about costs, rates, features and qualification requirements for successful home loan refinancing.
Refinancing presents an opportunity to optimise your mortgage structure, potentially reducing costs, shortening loan terms, or accessing enhanced features. However, successful refinancing requires careful evaluation of your options and circumstances. Before proceeding with any refinancing arrangement, ensure your mortgage broker can address these ten critical questions.
What are the complete costs involved in refinancing?
Refinancing involves several fees that can significantly impact your overall savings. Request a comprehensive breakdown including discharge fees from your current lender, application fees for the new loan, valuation costs, legal fees, and settlement charges. Understanding these upfront costs allows you to calculate the true break-even point and determine whether the long-term benefits justify the immediate expenses.
What is my current property value and equity position?
Your property’s current market value directly influences your loan-to-value ratio (LVR), which affects borrowing capacity, interest rates, and approval likelihood. A professional valuation provides an accurate assessment of your equity position and helps determine what refinancing options are available to you. This information is fundamental to structuring an optimal loan arrangement.
What is the true cost of borrowing?
While advertised rates attract attention, the comparison rate provides a more accurate picture of your borrowing costs by including fees and charges. Additionally, clarify whether any promotional or introductory rates apply and understand how your repayments will change over time. This transparency ensures you can make informed decisions based on long-term costs rather than short-term incentives.
Which interest rate structure best suits my circumstances?
Fixed and variable interest rates each offer distinct advantages depending on your financial situation and risk tolerance. Fixed rates provide payment certainty and protection against rate increases, while variable rates offer flexibility and potential savings if rates decline. Consider whether a split loan structure might provide an appropriate balance between stability and flexibility for your needs.
What loan term optimises my financial objectives?
The loan term significantly impacts both monthly repayments and total interest costs. Extending the term reduces monthly obligations but increases total interest paid over the loan’s life. Conversely, shortening the term reduces total interest costs but increases monthly repayments. Request detailed calculations showing both scenarios to understand the financial implications of each option.
What features and facilities are included?
Modern home loans often include valuable features such as offset accounts, redraw facilities, and unlimited additional repayments. These features can substantially reduce interest costs and provide financial flexibility. Evaluate whether the benefits of these features justify any associated fees and align with your financial management preferences.
Are there restrictions on additional repayments?
The ability to make extra repayments without penalty can significantly reduce your mortgage term and interest costs. Ensure your new loan permits unlimited additional repayments or understand any restrictions that may apply. Some loans impose limits on extra payment amounts or frequency, which could limit your ability to accelerate loan repayment.
What are the eligibility and documentation requirements?
Each lender maintains specific lending criteria, typically including income stability, credit history, and equity requirements. Understanding these requirements early in the process helps identify potential approval challenges and ensures you can provide necessary documentation efficiently. This preparation can streamline the application process and improve approval prospects.
Is your broker properly licensed and qualified?
Verify that your mortgage broker holds current licensing through the Australian Securities and Investments Commission (ASIC). Licensed brokers are bound by professional standards and regulatory requirements that protect your interests. This verification ensures you receive qualified advice rather than potentially biased product recommendations.
How is your broker compensated?
Understanding your broker’s compensation structure promotes transparency and helps you evaluate potential conflicts of interest. Some brokers charge clients directly regardless of the chosen lender, while others receive commissions from lenders. Some may receive higher commissions for certain products. While various compensation models can be appropriate, transparency allows you to assess whether recommendations align with your best interests.
Making informed refinancing decisions
Successful refinancing requires thorough evaluation of costs, benefits, and alternatives. A qualified mortgage broker should readily address all these questions and provide detailed analysis supporting their recommendations. Take time to review all documentation carefully and ensure you understand the long-term implications of any refinancing decision.
Remember that the lowest advertised rate may not necessarily provide the best overall value when fees, features, and terms are considered comprehensively. Focus on finding a loan structure that aligns with your financial objectives and circumstances rather than simply pursuing the most attractive headline rate.
Consider seeking independent financial advice if you’re uncertain about how refinancing fits within your broader financial strategy, particularly if you’re considering significant changes to your loan structure or term.
This is general information only and is subject to change at any given time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.
