Taking out a mortgage to fulfil your dream of house ownership will likely be one of the most significant financial decisions you could make. But with rising interest rates, monthly repayments and day-by-day costs straining finances across the country, are you able to refinance your home loan?
Switching to another bank for your home loan is known as refinancing. Refinancing your home loan could help you:
- Save money with a lower interest rate or reduced fees
- Reduce your repayments
- Borrow more for a renovation, investments, or a new car
- Lock repayments in with a fixed rate home loan
- Consolidate several loans
More and more Australians are finding themselves constrained by their mortgage however, and are unable to refinance or switch lenders. This is what’s known as mortgage prison.
This means that, even if your circumstances have changed since you took out your home loan, you may not be able to switch to another bank to help improve your financial position due to not being eligible according to the new bank’s lending criteria.
For example, banks generally require that a new customer (including one refinancing from another bank) can handle 3 percentage points in interest rate rises from the rate they are being assessed on. Customers can also end up in mortgage prison if their home has lost value since they bought it, causing their loan-to-valuation ratio to deteriorate.
Many homeowners may find it difficult to refinance their home loan due to lending policies that keep them trapped in their mortgage prison.
If you would like to break free from your mortgage prison, examine your current loan closely, including the terms and conditions. Then:
- Be clear about what you want to achieve by refinancing
- Choose the type of loan based on your needs
- Check your financial position
- Research all your options
- Look out for hidden costs
- Choose a suitable accredited lender.
Speaking directly to a mortgage broker or a legal advisor may be your best solution to resolving your home loan situation.
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