With massive potential savings in switching to a cheaper loan, it’s no wonder more homeowners are refinancing. But those who don’t do their homework can find horrible surprises in higher fees, new deposit requirements, and tougher terms. So here we are providing some useful Mortgage refinance tips which are worthful
A house buyer with a $1 million mortgage paying 5% could save $683 a month (or more than $204,000 over 25 years) by interchanging to a 3.78 per rate, states home loan broker Mortgage Choice. The interchanging costs would be improved in 2 months.
The big savings explain why remortgaging has increased 3-fold during the last 25 years to 30 % of loan approvals and reached “extraordinary levels” this year, states investment bank JP Morgan.
But the period of lenders cutting rates to build market share is coming to an end as their focus turns to rebuilding revenues, lowering costs and increasing capital to meet firm new regulatory requirements.
“Investors are still hot for the run,” states Martin North, principal of Digital Finance Analytics, about lenders’ willingness to do deal with high net worth buyers of properties in Melbourne and Sydney’s inner-suburban markets.
So are lenders for borrowers with big deposits, regular income and plans to purchase properties that are not in high-rise buildings around the central business districts or large apartment complexes in suburbs.
But most organizations are already starting to tighten borrower conditions, increase deposits, vow on more evidence of regular income and toughen terms on interest-only loans.
John Flavell, chief executive of Mortgage Choice, boosts property buyers to look around for the best rates and terms. “Property investors and owner occupiers paying more than 4.5 % interest on their mortgage could be paying too much,” he adds
Some lenders are offering rates of 3.44%.
But Christopher Foster-Ramsay, chief of mortgage broker Foster Ramsay Finance, cautions: “Cheapest is not constantly the best. It is important that customers read the fine print to pick up any hidden fees and charges that may cost benefits or savings. The mischievous sprite is in the detail.”
The accompanying tables by Canstar, which observer’s fees and charges across a range of financial services products, offers a snapshot of what is available to homeowners and investors considering basic, standard and package adjustable or fixed rates ranging from 1 to 5 years.
For example, the maximum rate on a basic residential mortgage rate on a principal and interest loan of $800,000 is 5.27 %, compared to a minimum of 3.55 %.
Application fees range from a maximum of $900 to zero. The average is about $321.
An investor allowing for the same loan could choose between a minimum of 3.69 %, or maximum of 5.55 %. Application fees also range from $900 to zero.
There are also big differences between rates and fees for fixed loans.
For example, the minimum for a 5-year fixed rate is 3.8 % and maximum 5.49 %. Application fees range from zero to $800.
5-year fixed rates for investor loans range from 3.8 % to 5.61 %.
“A borrower without 20 % equity in a property should be very careful because they will likely be charged lenders mortgage insurance (LMI),” advises Justine Davies, a Canstar spokesman.
For example, a $700,000 property with $70,000 equity (10 %) could be accountable for LMI of $17,000 (equivalent to $85 a month over 30 years).
Borrowers need to check with lenders about minimum deposits because many are being raised, mostly for inner-city and suburban high rises and apartment complexes.
Some lenders (such as Westpac and its affiliates Bank of Melbourne, St George, BankSA and RAMS) are offering $1500 refinancing cash back for applications received by the end of the year.
The offer applicable only to loan applications for refinances of $250,000 or more, and those considering them need to check other conditions.
“Even if your lender does usually charge an application fee, negotiate,” states Canstar’s Davies.
“As a borrower with healthy equity, you are a premium customer and the lender will want your business,” she adds. “There is a significant difference between the minimum and maximum loan rates, which means there is a lot of money to be saved by comparing your options and negotiating.”
It’s important when you refinance to be aware of the timing. Payment happens when the contract is signed for the new loan and the funds are drawn down. This involves paying of the existing loan using the funds from the new loan.
Stuart Wemyss, a director of the mortgage broker ProSolution Private Clients, suggests the following checklist of fees to help you work out whether the case stacks up for a change:
Discharge fees from the existing lender. This is an administrative fee of between $100 and $200 for processing the discharge of the mortgage/loan.
Early repayment fee: most have been phased out. But some of the smaller lenders can levy a fee of between $100 and $1000.
Fixed rate break fee: these can amount to several thousand dollars.
Mortgage registration: this is a state government fee charged when the current lender deregisters a mortgage and the new lender registers the new one. Costs depend on your state but vary between $220 and $350.
Application fees: range from 0 to $1000.
Valuation fees: these are not normally charged for standard properties but can cost between $100 and $300.
Settlement fee: an administrative fee charged by the new lender, it costs between $100 and $300 per loan.
Lenders mortgage insurance: this applies if more than 80% of a property’s value is borrowed. It can range from 2 % to 4 % of the loan amount, which often makes it too expensive to refinance.