Refinancing your home loan is a great way of accessing a better interest rate or changing up the structure of your loan to access better features. This can help you save money over the life of the loan, however, there are several things that need to be considered. Below, the team at Mortgage Masters, the mortgage broker Auckland homebuyers can rely on, look at some of the key considerations.
Structure of Your Loan
Features of a home loan tend to vary depending on the lender, but there are typically three ways home loans can be structured:
- Basic: These offer low fees and a simple structure but have fewer features and less flexibility.
- Standard: These loans offer flexibility with features such as choosing between fixed, variable and split rates, offset accounts and redraw facilities. The trade-off is they tend to have higher interest rates.
- Packages: This involves bundling your home loan with other products from the lender such as a bank account or credit card to access a discounted interest rate.
When refinancing your home loan Auckland homeowners should take care to avoid making the mistake of focusing entirely on interest rates only to find yourself paying additional monthly fees, application fees, break costs, valuation fees and other unexpected costs.
Fixed Home Loans
Fixed home loans have an interest rate that is fixed for a set period, generally one to five years. One the fixed rate term is over, the loan will switch to the variable rate offered by the lender. Advantages of a fixed rate include:
- Easy budgeting as you know exactly what you’re repaying
- Security and stability from knowing you can meet repayments
- Rate rises don’t matter
Disadvantages include:
- Rate drops below your fixed rate will be frustrating
- Break fees if you change or pay off your loan within a set period, for example, if you sold the property
Lenders try to predict how the official interest rate might move when fixing rates. If the rate is expected to rise, they may fix a rate higher than their variable rate and vice versa.
Variable Home Loans
Variable home loan interest rates fluctuate approximately in parallel with the Reserve Bank’s official cash rate (OCR). Variable rates shift as a reflection of the current economic climate. Advantages of a variable home loan include:
- Greater flexibility with features, e.g., redraw facility and refinancing
- Ability to make extra repayments at no cost
- Rate drops will be beneficial
Disadvantages include:
- Stress and financial hardship from rate rises
- Harder to budget and plan your finances over the term of the home loan as it’s hard to predict how much rates will fluctuate or rise
An alternative option is to bet both ways and fix half of your loan and keep the other half variable. This allows you to manage some of the risk of interest rate rises while still being able to take advantage of flexible options available under variable home loans, such as making extra repayments.
If Refinancing a Home Loan Auckland Buyers Should Consult a Broker
If you’re considering refinancing, an independent mortgage broker can help you find the lowest interest rate and best structure for your needs. By consulting a mortgage broker Auckland homeowners can find the best possible deal. Whether that’s negotiating terms with your current lender or refinancing with a new lender.
H2: Consult the Best Mortgage Broker Auckland Homeowners Trust
Visit Mortgage Masters to consult with the best mortgage broker Auckland homeowners can find for help refinancing their loans and finding the right solution for your unique circumstances. Get in touch today for a free consultation.
