Home sweet loan: Why, when and how to remortgage your home
So, you (and your lender) own your home. And lately, you’ve been feeling the squeeze of Australia’s cost-of-living crisis and never-ending interest rate hikes. Well, remortgaging may be a solid solution. But this process raises a lot of questions. For example, should you shop around for a lender? Can you use this as an opportunity to release equity for an investment or overhead? And is there a way to reduce your repayments when you come off your fixed-rate term? To get the lowdown, we sat down with Daniel Hustwaite – Principal of Aqua Financial Services – for some expert advice.
Why consider remortgaging?
Buying a house is an exciting time. But it’s also filled with big decisions – and plenty of paperwork.
So, why would a homebuyer step back into these stressors to change their loan agreement?
‘In reality, a well-thought-out remortgaging plan can cut years off your home loan – and save you thousands in the process,’ says Daniel.
‘It can also allow you to free up equity, giving you cash flow for home improvements, an investment property, starting a business or even consolidating debts,’ he adds.
Daniel encourages all homeowners to reassess their loan terms and the fit of their lender, frequently.
‘It’s important to reflect on your loan every 12 months to ensure it’s still working for you, your goals and your circumstances.’
Stay loyal to your lender… or make the switch?
When it comes to refinancing home loans, everyone’s needs are different. But your choice will always be underpinned by one obvious question:
Should you renegotiate with your current lender… or switch to a new provider?
‘As with most things in life, there are pros and cons to both,’ says Daniel. ‘The main positive of renegotiating with your current lender is that your administration, exit and product switch fees will be lower than if you switched.’
But an often frustrating reality with lenders (and many service providers) is that customer loyalty doesn’t always pay off. Daniel explains:
‘Winning new borrowers’ business is a high priority for many lenders. And to attract them, they offer some amazing deals.
‘This is great for a new customer, but it’s a generosity often not passed on to existing clients. That’s why shopping around is often a good idea.’
But there are some expenses to keep in mind if you do decide to jump ship.
‘Going with a new lender will likely mean more set-up and transfer fees,’ says Daniel. ‘These can include a mortgage advice fee, a market appraisal fee and legal costs. Plus, an exit fee from your current lender.’
‘So don’t get swept away in a lender's promises of savings. Make sure you do the numbers first to ensure the new loan works for you today – and long-term,’ adds Daniel.
When is remortgaging not right for you?
While remortgaging can be a fantastic financial decision for many homeowners, it’s not always the right move.
So, how do you know when not to remortgage?
‘When a client comes to me for remortgaging advice, I ask a number of questions immediately to ensure it’s right for them,’ says Daniel.
‘For instance, if you’re still in your loan’s fixed-rate term, the penalty fee you will incur through changing loans or lenders can cancel out any financial gain from a lower interest rate.
‘Or you may not yet have enough equity in the property (you’ll need 20%) to allow for a remortgage to happen,’ says Daniel.
Personal and economic factors also play a part
A good broker will ask about a client’s life conditions before suggesting a remortgage.
‘I always need to ask my clients some personal questions – because the answers reflect serviceability,’ Daniel continues.
‘For example, I need to know if they’ve been negatively impacted by credit rating since they got their mortgage. I’ll also need to know if their relational or employment circumstances have changed.’
But even if personal circumstances haven’t changed, the economy certainly has.
‘Banks have upped their buffer rates from 1% to a rather large 3%,’ Daniel notes. ‘The buffer increase was necessary to stabilise the financial industry, as it reduces the likelihood that many borrowers would default on their loans.
‘But sadly, this has made securing a home loan or refinancing out of reach for many,’ says Daniel.
A final word: Get the right advice
There’s a lot to think about when it comes to remortgaging. So, how do you know if it’s the right choice for you and your finances?
‘It’s always wise to get personalised, professional advice. This is often the biggest investment in anyone’s lifetime, so ensuring your loan and repayments suit your needs is imperative.
‘And advising you on that decision is a big part of a broker's job,’ says Daniel.
And what traits should you look for in a mortgage broker?
‘Obviously, you need someone who knows their stuff,’ Daniel replies. ‘But finding someone who makes you feel comfortable to discuss your circumstances is important, too.
‘Many people still find talking about money uncomfortable. So, if you find a broker who puts you at ease financially and emotionally, you’re onto a winner!’ he says.
The expertise and care offered by Daniel and his colleagues are exactly why the team at Gary Peer refer to Aqua Financial Services every day.