Refinancing
How competitive is your interest rate?
Whether your debt is for your home, personal or investment reasons, reviewing your loans should be done at least annually. You should especially be reviewing your position at the expiry of any fixed rates that you may have as the lender usually reverts the loan to the standard variable rate; a rate that is often much higher than other rates available in the market. Another reason to review may be that a loan simply doesn't suit your needs any more, or your circumstances have changed.
There's tremendous competition in the banking market, and most borrowers could find a lower rate than what they currently have and by refinancing your loan you'll be able to reduce your ongoing commitments. However, in some cases there are hidden costs, fees or limitations so you should ensure that you've spoken to your lending specialist to ensure you are fully aware of the implications and understand the fees, charges and comparison rates.
Consolidating Debt
If credit cards or personal debt are crippling your cash flow you may need to look at consolidating some of your debts.
Credit card debt is some of the more expensive interest rates on offer and by rolling that debt into your home loan you can save on the interest rate and help to reduce your regular repayments.
Furthermore, it is also easier to manage by having one singular repayment rather than multiple payments throughout a monthly period, thus giving you back some control over your own money.
Unlock your equity
Aside from debt consolidation, you may wish to use some equity in the property. This may be for improving your home, buying a car, investing some funds or just as an emergency for the future. Many also unlock their equity to use as a deposit when buying a home.
The process to do this may be as simple as drawing a new loan or increasing your existing facility, or it could involve reassessing your entire situation and saving you money in the process.
Refinancing methods
A refinance can be external or internal. An external refinance is when a new loan is taken with a new bank, and the old loan is closed with the old bank. In essence, the debt is taken over by the new bank. This often occurs when the borrower is dissatisfied with their old bank or the bank doesn't offer a loan that suits the clients' needs.
An internal refinance is where the debt is taken over within the same bank. In other words, a new loan is taken and an old loan is cleared but it's done by the same bank. Again, this could be due to a limitation of the loan, but it could simply be an increase of an existing facility.
For a more steadfast solution, some lenders offer a rapid refinance option by settling on the refinance without exchanging the documents with the old bank.
There are many options with refinancing; your lending specialist can best advise you of your refinancing options.