| refinance, mortgage | 8 Apr 2008 12:00 AM |
| Refinance to reduce mortgage stress by Michelle Kour | |
A record number of Australians will suffer mortgage stress and will face difficulty in paying their mortgages this year with a percentage of those risking repossession of their homes. A refinance of your loan may be an option that will assist in relieving this stress. As a matter of course you should review your home loan terms and conditions each year to check that they are the most suitable for you and if not, a refinance could improve your cash flow.
Home loan stress or Mortgage stress is defined as applying more than 30 per cent of the household income towards servicing the mortgage.
If you haven't yet decided what to do about the problem, before looking at a refinance contact your lender as they are equipped to provide you with advice about your options. These may well include an internal refinance to a new loan product the bank may not have had available when you first negotiated your mortgage with them.
Although you will eventually have to pay back the whole of your mortgage no matter which lender you are refinanced with, there are several ways that it might be possible to change your home loan to make your monthly payments more affordable.
If you decided to refinance to another mortgage borrowers can often access or choose from the following that may better suit their current needs:
1. Fixed Interest rate facility (allows the borrowers to budget for the next couple of years as they will know exactly how much per month their repayments will be). If you decide to refinance into a fixed rate you must be committed to that loan for at least the term of the fixed rate period as there are generally higher exit fees when you repay or refinance a fixed rate home loan early.
2. Interest only facility. (allows the borrowers to make interest only repayments in lieu of principal and interest repayments). Most home oians are on a principal and interest basis. If you are struggling with your mortgage repayments call your existing lender (before you go into default) and ask to change the repayments to interest only. This will free up some cash to assist with day to day living and help keep the roof over your head.
A refinance also allows the borrower to free up any available equity (depending on current value of security property) they may have in their property to tie them over for a period of time. While it is always preferable to pay down your debt if you are having difficulty and also have some equity your home then before your financial problems become insurmountable speak to your lender to vary the loan (perhaps increase it by $10,000) and have this money available for cost of living expenses. This will also give you some breathing space to decide on a refinance or whether the best course is to place your property for an orderly sale.
The best solution usually depends on the type of mortgage you have and your personal circumstances, by utilising our mortgage calculator you can work out the loan term required to match the minimum instalment that you can manage each month.
Home loan stress or Mortgage stress is defined as applying more than 30 per cent of the household income towards servicing the mortgage.
If you haven't yet decided what to do about the problem, before looking at a refinance contact your lender as they are equipped to provide you with advice about your options. These may well include an internal refinance to a new loan product the bank may not have had available when you first negotiated your mortgage with them.
Although you will eventually have to pay back the whole of your mortgage no matter which lender you are refinanced with, there are several ways that it might be possible to change your home loan to make your monthly payments more affordable.
If you decided to refinance to another mortgage borrowers can often access or choose from the following that may better suit their current needs:
1. Fixed Interest rate facility (allows the borrowers to budget for the next couple of years as they will know exactly how much per month their repayments will be). If you decide to refinance into a fixed rate you must be committed to that loan for at least the term of the fixed rate period as there are generally higher exit fees when you repay or refinance a fixed rate home loan early.
2. Interest only facility. (allows the borrowers to make interest only repayments in lieu of principal and interest repayments). Most home oians are on a principal and interest basis. If you are struggling with your mortgage repayments call your existing lender (before you go into default) and ask to change the repayments to interest only. This will free up some cash to assist with day to day living and help keep the roof over your head.
A refinance also allows the borrower to free up any available equity (depending on current value of security property) they may have in their property to tie them over for a period of time. While it is always preferable to pay down your debt if you are having difficulty and also have some equity your home then before your financial problems become insurmountable speak to your lender to vary the loan (perhaps increase it by $10,000) and have this money available for cost of living expenses. This will also give you some breathing space to decide on a refinance or whether the best course is to place your property for an orderly sale.
The best solution usually depends on the type of mortgage you have and your personal circumstances, by utilising our mortgage calculator you can work out the loan term required to match the minimum instalment that you can manage each month.
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