Key Points
- Refinancing entails having your current home loan reviewed in order to get a better rate.
- The Loan to Value Ratio (LVR) is the percentage of the loan against the value of the property.
- Your LVR could have potentially gone down because the value of your property has gone up.
'May PERAan' is SBS Filipino's podcast series which features financial experts seeking to answer the most common questions about money and finances.
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Ito na ba ang tamang panahon para mag-refinance ng iyong homeloan?
SBS Filipino
16/08/202211:26
"Don't put yourself in a situation that you are unable to pay off your mortgage. ," Senior mortgage broker Maria Papa shares.
To prevent these situations from occurring, Maria advises to look into refinancing your home loan.
What is refinancing?
Maria shares that refinancing is an option for those who already have a home loan.
"The current home loan is reviewed, then research is done to see if there is another lender that can provide a better, more competitive rate; or another product that can meet the homeowner's current rate or situation."
Reasons for refinancing
Maria shares that homeowners may have the following reasons for wanting to refinance their home loans:
1. Increasing rates
According to Maria, "The RBA and banks are increasing their rates. Right now, cash rate is around 1.85%, but banks are projecting another 1% rate rise probably until the end of the year.
"If you can get a rate discount of 0.5% on a home loan, that's saving you $2,500 a year on a half million loan."
Maria shares that it's important to talk with your current lender as soon as you can so you can get on a better rate early.
"Speak with your bank or mortgage broker regarding the most suitable plan for you."
2. Lower LVR, higher property valuation
"It is possible that when you took out the loan five or 10 years ago, the deposit then was only 5%. Remember that interest rates are usually higher if you have a lower deposit.
"There's what we call the concept of Loan to Value Ratio (LVR). This is the percentage of the loan against the value of the property."
With this concept in mind, Maria shares that if your property is worth 1 million and you borrowed 950,000, the LVR is 95%.
"Have a look at your current LVR because interest rates increased 20-30% over the past two years, so your LVR could be lower. Your LVR could now be at 80-70% and the value of your property could have gone up.
"Go to your current lender and see if you can get a better interest rate."
3. You have a better credit score
Maria shares that whenever you take out a credit card, take out a loan or have late payments, your credit score takes a hit.
"The lower your credit score [below 600], the more likely banks will see you as high risk. Because you're high risk, lenders will give you higher interest rates.
"Review your current credit score. The closer to 1000 you are, the better your chances are of getting a better home loan."
Drawbacks of refinancing
Maria shares that moving from one lender to another or one level to another will normally cost $350. You will also need to pay an application fee.
"However, competition amongst banks is fierce; so they now offer cash backs which can range from $2,000-$5000.
"Higher cash backs require loan amounts to be a million or more and LVR to be 70% or less.
"However, a typical cash back is $2,000."
Disclaimer: The information in this article serves only as a guide. For additional information regarding your particular issue or situation, consult with legal, financial and/or tax experts.
