As interest rates begin to fall, you may be considering refinancing your home and looking for a better deal on your mortgage. But how can you be sure you'll be better off if you changed lenders, and how do you go about making the switch? Read on to find out more.
The first thing to do is to have your property valued. If you're in the early years of your original loan, you won't have paid much of it off, so your loan-to-value ratio will probably still be quite high. Unless your property has appreciated in value considerably, this will mean that the cost of refinancing could easily outweigh any benefits that could be gained by changing lenders. A simple valuation of your property could therefore make the decision to "stick or switch" for you.
Your current loan
Before looking for a new loan with a different lender, it's important that you understand the terms of your current arrangement. You'll need to be clear about what portion of your current repayments is given over to interest, and work out what the difference would be if you were to switch to a different lender.
Look closely at the annual charges you pay, together with any settlement cost that would be incurred if you were to move to a different finance house. Clearly, there's no point in changing lenders if you would be no better-off financially.
Calculate potential savings
Once you are clear on the current terms and financials of your present loan, you can shop around for a better deal. A quick way to do this is by using a comparison website to do the legwork for you. Make a shortlist of the three best home loan interest rates in the current marketplace. Now work out what monthly savings you could make using each loan provider's headline rate and the online repayment calculator provided.
If you think you could make a good monthly saving by refinancing, you now need to work out what extra costs would be entailed if you were to switch lenders. Ask each of your shortlisted lenders about costs and processing fees, as these won't be included in the comparison rate. Divide any extra costs across the year and add them to your monthly repayment figure to see if you would still be better off.
Making the switch
In order to apply to your new lender for finance, you'll need to have all the requisite paperwork ready. You'll need to have payslips, details of your last six months' home loan repayments, and tax returns, together with any credit card, overdraft details.
Fill in the lender's application form and submit it together with the paperwork.
Finalising the switch
When your loan has been approved, your new lender will send you your new loan documentation for signature. Once you've returned this, the financiers will arrange the mechanics of the actual switch and you'll be notified of the settlement date.
Falling interest rates can give you a considerable saving on your monthly home loan, if your circumstances are right for you to make the switch to a new lender. Follow the guidelines above to make sure you get a good deal, and always seek advice from an experienced real estate agent or broker when seeking finance for a home loan.