What you need to do before refinancing
You’re in the market to refinance and you’ve done your initial research. There are many reasons you might consider refinancing.
Maybe you’ve had a look online and realised your current interest rate is not quite measuring up to other loans out there or there’s been a change in your situation. You could be trying to tap into your equity to free up some cash for a major purchase or simply not be not happy with your current lender anymore. Whatever your reason for refinancing, there’s a few things you could sort out before getting started.
Pay off those personal loans
This sounds like a no-brainer but tackling that personal loan you took out all those years back will help your refinancing plans more than you think. This is because of your debt-to-income ratio. Although you qualified for your home loan 5 years ago, you might not necessarily 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 strike them out with a one-off payment.
Get rid of your credit card debt
Credit card debt is one of the most common obstacles to refinancing. If you’ve got credit card debt, it’s time to face it and get rid of it. This will allow your financial position to appear far stronger for a refinancing application. Make sure you cancel any credit cards you no longer need as this could increase your potential borrowing power.
Prepare for the refinancing process
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.
Here are some numbers to keep your eye on:
- Cancellation costs if you close a loan with your existing lender
- A low interest rate that suddenly goes up once your honeymoon period has ended
- Comparison rates which will include certain fees that go hand in hand with the interest rate of your new loan.
Increase your home’s value
Another thing to consider is to increase the current value of your home as much as possible.
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. You’ll be thanking your future self when the valuer pops by to inspect your home.
If the interiors are already looking great 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.
Once you tick off all of the above, 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.