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Getting your house in order; what you need to do before you refinance
You’re in the market to refinance and you’ve done some initial research. Maybe you recently did a health check on your home loan and discovered you’re eligible for a lower interest rate. Or maybe you want to tap into your equity to free up some cash for a major purchase. Either way, there’s a few things you need to sort out before hopping on the refinancing bandwagon.
Other reasons you might be looking to refinance include changed family circumstances that mean you need to upgrade (or downsize) your home or you’re simply not happy with your current lender. Whatever your reason, there’s 4 key things you should get your head around before plunging into the application process.
Pay off those personal loans
This sounds like a no-brainer, but tackling that personal loan you took out for your honeymoon in 2016 will help your refinancing plans more than you think, thanks to a little something called debt-to-income ratio. Just because you qualified for your home loan 5 years ago doesn’t mean you’ll be granted a refinancing loan, especially if you’ve acquired other streams of debt during that time.
Take a look at your personal debt repayments and disposable income side-by-side to see where you can make the space to opt for higher repayment amounts. Making small sacrifices to your everyday spending behaviours in the short term is worth it if the end result means you could unlock a boost in future funds after refinancing.
Same goes for any outstanding car loans and student loans. If you’re feeling comfortable with your current financial situation, see if you can even make a one-off payment.
Get rid of your credit card debt
One of the worst and most common offenders. How long has your credit card debt been glaring at you? Now’s the time to get rid of it once and for all. This will allow your financial position to appear far stronger for that refinancing application.
Pro tip: While you don’t have to go so far as cutting it up, cancel any credit cards you don’t need. This will further assist your potential borrowing power.
Prepare for the refinancing process
Yep, refinancing could save you a sizeable sum in the long run with that lower interest rate, but you need to up your game when it comes to the ins and outs of fees that can be associated with refinancing.
These include:
- Cancellation costs: with your existing lender.
- Honeymoon period: make sure the lower rate is for the long term.
- Comparison rates: do the fees associated with your new loan mean you’re actually getting the best rate possible?
Up your home’s value
Another thing to consider is the current value of your home as much as possible (i.e. literally getting your house in order).
Do you still have that half-done bathroom reno staring at you every time you take a shower? What about that pesky DIY paint job you’ve been avoiding for the past three months? It’s time to don the overalls, roll up your sleeves and get stuck in. Trust us, you’ll be thanking your future self when the valuer pops by to inspect your home.
If the interiors are looking schmick and there’s not much to change, why not add a bit of greenery outside? Planting some shrubbery or flowers and adding some low-maintenance landscaping can add extra value to your home.
Tick off all of the above and you’ll be putting yourself in the best possible position to nail that refinance application and more importantly, put those freed up funds towards the things that matter most.
UHomeLoan info: Credit is provided by AFSH Nominees Pty Ltd Australian Credit Licence 391192. UBank is the mortgage manager for UHomeLoan products. Govt charges may apply. The Comparison rate is based on a secured loan of $150,000 over the term of 25 years. ^WARNING: This Comparison rate applies only to the example or examples given. Different amounts and terms will result in different Comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the Comparison rate but may influence the cost of the loan.
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