To Mortgage Refinance or not to Mortgage Refinance – that is the question on the minds of many borro

By: David Nalin

If you are feeling a little disgruntled about your mortgage rates or if your lender is simply not providing you with the service you desire it may be that you are thinking about a mortgage refinance. The reality today is that while mortgage rates llook attractive for new loans the majority of borrowers who are with the banks are paying the standard variable rate which is currently sitting at around 5.80% p.a. This could be you. It would seem to be a sensible move to weigh up your mortgage refinance options. What do you need to consider in this process?

Most borrowers simply jump into a mortgage refinance and are often well down the track before they realise that the move may not be a viable proposition. Before you spend too much time or any money look at the costs involved in your mortgage refinance. If you are dealing with a mortgage broker in the mortgage refinance process and he or she does not ask you to ascertain your exit costs on the existing home loan you have then quite frankly you should look for someone else to take care of your mortgage refinance. Many mortgage brokers only alert you to the costs of a mortgage refinance in so far as they relate to the cost of the new lender. They do not want to make you too aware of the costs that you will incur if you are exiting your existing loan early. As a general rule if you are paying out your mortgage within 5 years of its inception then the mortgage refinance costs will include early penalties.

Exit costs on a mortgage refinance will vary depending on whether you are in a variable or fixed rate loan. If you are in a fixed rate loan then you will incur “break costs” which as a rule of thumb equate to the difference between your fixed interest rate to maturity of your fixed period and the rate that the lender can currently reinvest its funds for that same duration. Recently many borrowers have commenced a mortgage refinance process not realising that their break costs are significant because of the dramatic rate reductions we have experienced in Australia over the past 12 months. The amount of these break costs may be such that the amount actually required to complete the mortgage refinance is such that the security value will not support the loan or the loan amount represents say 90% of the value and as a result the borrower incurs additional lenders mortgage insurance costs which can also be quite high.

If there are high early repayment penalties on your loan then you need to make sure that the interest rate differential between the existing mortgage and the new loan is such that you will recoup these costs within a 6 month period and thereafter be ahead as a result of your mortgage refinance.

Too often borrowers are ill-advised or embark on a mortgage refinance before doing the sums – as a result the interest saving they think the mortgage refinance will deliver is wiped out by the costs of the exercise.

Check all your costs first – for both the outgoing and in-coming lender before you proceed down the path of a mortgage refinance. It must be a viable proposition to make the mortgage refinance option a worthwhile exercise.

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Austral Mortgage Corporation offers competitive mortgage rates for both residential and commercial loans. We are also an expert on Mortgage Refinance to help you find the best loan to suit your situation. So whether you are looking for a mortgage or mortgage refinance, contact our reliable mortgage expert and let us do the hard work for you.

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