How to prepare yourself before refinancing your home loan
There could be many reasons why you’ve decided to refinance. Maybe your circumstances have changed and you need to upgrade (or downsize) your home or you simply just want to save more by getting a better deal, no matter what your reason is, here are 5 things you should do before you jump into the application process.
1. Check and monitor your credit score
Simply put, your credit score is a numerical representation of your credit reputation. The higher the score, the better you can look to lenders. That’s why it’s important to know your credit score and credit file information, so you can make the necessary improvements before you refinance.
Remember, lenders want to know that you have a history of making your repayments on time. If you’ve been a bit slack with your mortgage repayments, get them paid and up to date before you think about refinancing.
2. Work out your current situation
Find out how much you are paying on your current home loan and how much you have paid off. How much is your home worth now and how much equity do you have?
Equity is the difference between your property’s value and the amount you still owe on your property. It is also one of the things lenders look at when assessing the risk of lending you money.
The higher the equity (at least 20%) you have on your home, the better the chance that you’ll get a competitive deal.
If you haven’t reached the minimum equity, your lender could require you pay Lenders Mortgage Insurance (LMI). So, weigh up your options carefully as this amount can be hefty which may defeat the purpose of refinancing.
3. Start paying off your debts
You may have qualified for your home loan years ago, but that doesn’t mean you’ll be granted a refinancing loan, especially if you’ve acquired other streams of debt during that time.
Refinancing essentially is the same as getting a new mortgage and showing the lender you’re a responsible borrower is crucial.
Pay off your debts early and reduce any credit limits you don’t need well before you start the refinance process. Calculate your debt-to-income (DTI) ratio and take proactive steps to reduce it by making regular and larger repayments.
4. Get yourself organised
With tighter lending conditions, banks and lenders are putting more focus on your living expenses and spending habits.
Discretionary spending on things, such as Netflix, Uber, UberEats and Afterpay could affect your chances of approval.
Make sure you have a budget in place and try to eliminate unnecessary spending where possible. Save regularly each month to show the lender that you are spending within your means.
5. Get your home looking in tip-top shape
As part of the home loan refinance process, your lender will likely want to have your home valued. To help add that extra value to your home, make sure you present it as best you can to help lower your loan-to-value ratio (LVR).
There are many ways you can increase your chances of getting approved for a refinance loan, so start improving your financial position and make the necessary lifestyle changes to put your best foot forward when you apply.
Want to learn more about refinancing? Head over to the Learning Hub and get started today.
There are many stages to refinancing a home loan and a good place to start can be speaking to an expert, request a free appointment with an eChoice mortgage expert today!