Here we discuss when you should use a mortgage broker to refinance a home loan and answer – can mortgage brokers get better rates for a new loan?
Buying a home is everyone’s biggest purchase. It is a lifelong investment that requires to be treated with immense care. This is why when you are thinking of buying a house or financing your house, you must be careful about what financial process to rely upon.
Getting a new mortgage with a new lender and closing down the existing loan account can be an ongoing process you do a few times during the span of your mortgage. The refinance process can take a few months, and in some cases, there is no guarantee of how long it can possibly take for your new lender to approve a loan for your house.
This is why ensuring you have everything planned and figured out even before considering a loan refinance is important.
Before lodging an application, you must keep down all your cards and decide which route you are willing to take based on what direction you want to go in. For example, whether you should use a mortgage broker to refinance your home or go to a bank directly. And, if you go to a mortgage broker, can they get a better rate from the lender than what is advertised?
Before digging further, let’s be clear about what we mean by refinancing here. And, how that is different from applying for a new loan when you buy a house or building.
What Is Refinancing a Home Loan?
When you buy a property on loan, it can be extremely difficult to decide which path to take when it comes to finding a lender. The process also can be risky and extremely financially draining.
Nothing exceptional when you decide to refinance your existing home loan either.
Refinancing a home loan is basically a process in which the homeowner gets a new mortgage or loan in order to replace the current loan. Basically, in this process, when you are refinancing your home loan, you are asking for a new loan from a new lender so you can enjoy the ownership of your existing property.
This loan is usually taken to repay or ‘settle’ your old loan so that you can easily move the debt from an existing lender to a new one.
In other words, refinancing helps you in getting off the loan from your current mortgage.
Refinancing also helps you find a lender offering better interest rates and loan terms so you can save money and cut the loan cost. The key is to make sure that you save money by refinancing.
In most cases, you continue to pay off your home dues, but you’re also making more payments to ensure you are free from the loan sooner.
There are two reasons why someone might choose to refinance their home alone.
1. To Cut The Cost
Firstly, they might want to enjoy the perks of having better and lower interest rates, so the day-to-day servicing cost of the loan will be lesser.
2. Borrow More Money From A Lender
Secondly, to increase the original amount a lender pays based on your assets’ current valuation. There are many perks to this. The excess money they release can be used against purchasing a new investment property.
You can make more money by investing in the long run.
The primary goal of such a decision is always to increase and improve your property portfolio for a wealthier future.
When Should You Refinance Your Home Loan?
No matter how satisfied you may be with your property and home loan, there is a time when you need to consider refinancing your home loan.
Making financial decisions requires the knowledge of doing it at the right time. Otherwise, the outcomes could stand against you.
Here are the circumstances which indicate that you should consider refinancing your home loan.
1. To Reduce The Interest Rate And Loan Servicing Cost
Lower interest rates are always attractive for borrowers. This is because lower rates mean that you have to pay less to your lender.
In most cases, the main aim of refinancing is always to save more money, and when the new lender offers a better interest rate, then you commit.
2. To Decrease Or Increase Your Loan Term
Sometimes it is important to make sure that you decrease or increase your loan term, depending on your property investment strategy.
The earlier you can repay your loan, the better it is for you in some circumstances. However, if you decide to refinance your loan, then your monthly payment might increase, but you will benefit from a shorter loan term.
Advanced property investors may extend their loan term to borrow more to invest in a new property.
3. To Get Rid Of Private Mortgage Insurance
For many people, private mortgage insurance is an additional cost of property investment. Sometimes, refinancing your mortgage can help you get rid of private mortgage insurance.
When Shouldn’t You Refinance Your Home Loan?
Now that you know when to refinance your home loan, it is important to know when not to do so.
You should not refinance your home loan if you find yourself under the following circumstances:
1. You Are Getting A Longer Break-even Period
Getting loans is difficult. Finding newer loans in a shorter span of time can be a real challenge. If you find yourself in a situation where applying for a new loan takes a lot of time, then you should consider dropping the idea.
The home loan industry is a hefty business, and you do not want to waste more time. This is where a good mortgage broker may help you big time!
2. When You See That The Long-term Costs Are Higher Than The Anticipated Profits
We all look for shortcuts. What seems to be attractive and appealing at one minute might turn out to be disgusting later. This is why if refinancing seems to have higher costs in the long term, then refinancing your home loan is definitely a bad idea.
Before making any final decision, it is best to consider whether it will benefit you in the long run or not. For example, how well will the refinancing position you with your next property purchase?
3. The Closing Costs Are Expensive When That’s Likely Needed
No one wants to be stuck in a deal that is difficult to close.
There is nothing such as free finance. So, if you are closing down your previous loan, sometimes you may have to repay at a much higher breaking fee.
Braking fees can be fixed or a percentage of your loan balance and are usually non-negotiable. Hence, if you are likely to find yourself in such a situation after committing to a refinance, then it is best not to refinance your loan.
Now, let’s turn to the popular options available to us when refinancing a home loan. They are to find the next lender through a mortgage broker or to apply for a loan directly with a lender after some research online.
Mortgage Broker vs. Going To The Bank
Since you have now decided to refinance your loan, it is important to choose how to proceed.
There are two ways; you can refinance your house loan through a mortgage broker or directly with your bank of choice.
Mortgage Broker Provide Access To Many Lenders
A mortgage broker is basically a third party between you and the financial institution that helps you in applying for a home loan; regardless it is a new loan or a refinance. A mortgage broker acts as a mediator between you and the other parties (e.g. lender, valuer, real estate agent) involved in buying a house.
The main difference between a mortgage broker and a bank is that the bank can offer you only a particular product of that bank, whereas a mortgage broker helps you compare products between multiple banks, giving you more mortgage options and a birds-eye view of your circumstances.
Since mortgage brokers tend to have professional contacts within the lending industry, they have access to a huge variety of lenders and rates. They provide a much wider financial perspective which can help you in making much more informed decisions.
Banks allow you to consolidate if you have a relationship with them. Usually, those offers are not negotiable, especially if you don’t demand.
In contrast, a good mortgage broker tends to fight for you to negotiate a better rate for you.
On the other hand, banks can provide you with personalised services and emotionally tackle you. You do not have to go to random places in order to negotiate, just talk to your bank manager, he might be already closer to you.
However, the knowledge of mortgages is still limited to banks. When you are thinking of refinancing your home loan, you must take into account all kinds of perspectives. For example, how much of your personal circumstances your bank needs to know about you? Do you need to tell all your future plans to the bank you bank with? And many more…
If you use a mortgage broker, he will keep your personal circumstances to himself, and tell the lender only the information they need to know to make a wise decision about your loan application.
Before addressing if a mortgage broker may help you to get a better interest rate, let’s dig deeper about seeking services from a top mortgage broker in Australia.
Should I Use A Mortgage Broker To Refinance A Home Loan?
You should use a mortgage broker to refinance your home loan if your mortgage broker has all the information needed regarding mortgages and lender interest rates.
Refinancing is a major decision. It can put you in more problems if it is not done through proper research. A mortgage broker can help you research the best possible deals and rates.
A mortgage broker has better access to the market and valuable market knowledge. They can actually help you access unique loans, which you won’t be able to signed-up for otherwise.
Moreover, a reputable mortgage broker is not constrained in any way. If you do not feel happy with a particular deal or offer, it is easier for them to end it, than go directly to a bank that is too concerned about its brand name. If you are unsatisfied with a lender, then the broker can look elsewhere easily instead of staying focused on particular contracts or a narrow product line.
A mortgage broker can easily search for the best refinancing loan for you. You do not have to feel restricted.
Mortgage brokers are perhaps the best option available when you are thinking of refinancing your mortgage. They can help you in ways no other financial institution by their own can.
Now let’s turn to our main questions; Can Mortgage Brokers Get Better Rates?
Let’s find out…
Can Mortgage Brokers Get Better Rates?
A better rate is always the goal of anyone interested in refinancing their home loan. Most likely, you refinance to get a better interest rate that is lower than the mainstream market or advertised rates.
If you are unable to get a lower rate, then refinancing is a terrible idea. At least most of the time!
When it comes to refinancing, a mortgage broker is always the best option that is available. This is because an experienced mortgage broker might be able to get a much better rate for your new loan, sometimes a customised rate for you.
Mortgage brokers can generally help you out with getting better rates. They provide personalised services so you can talk about your refinancing decision in detail.
They can search for a lender and personally talk to them based on your needs and wants. The thing about mortgage brokers is that they never stop searching, as if you are not winning, they are not winning too.
It is easier for them to find better rates as they may have contacts with lenders, and broker managers and can negotiate easily without hesitation. Mortgage brokers also help in finding the lowest interest rates, thanks to their wholesale partners.
Thanks to all those, contacts might be able to offer a streamlined mortgage application process, tapping into their existing relationships, and they can negotiate better.
Can you believe that sometimes they might even be able to find a much lower rate than the rate that the same bank has advertised online? That’s a win-win!
Also, you really do not have to worry about paying mortgage brokers as they are meant to receive a commission from the lender, not from you. They
Do Mortgage Brokers Cost Money When You Refinance?
Many people think refinancing is costly, especially when you are relying on a mortgage broker to do it. Some people always think that mortgage brokers charge a lot of money. And if you are refinancing, then they charge double the amount. But is that even true?
Many such myths surface around. However, none of them is true.
Mortgage brokers do not cost a lot of money, sometimes no cost to you at all. In fact, if you are thinking of refinancing your home loan, then mortgage brokers can actually help you save money at the cost to the lender.
When refinancing a home loan, mortgage brokers usually do not charge you fees.
Sometimes they might charge a minimal amount; again, that’s only if you have a complex mortgage portfolio. For example, mortgage brokers might charge about 0.2% of your loan balance. This amount is only a commission and a service fee they tend to provide to you.
A mortgage broker generally asks for a fee from the lender; however, they can also charge a commission from the borrower. In our view, their charge to the borrower, if any, is justifiable in most cases, knowing how expensive refinancing can be, especially if you made a wrong decision!
If charged, the amount charged varies from broker to broker. Remember, in most cases, a mortgage broker will not even charge you for refinancing. They might only take a small percentage of the house loan from the lender.
Regardless, they are legally obliged to disclose to you the amount they get paid from the lender or you, before you sign any contracts.
There are too many benefits of using a mortgage broker for your mortgage needs; however, it does not mean you should use just any broker to guide you.
When Should You Not Use A Mortgage Broker To Refinance A Home Loan?
Mortgage brokers may be a good option, but they don’t always work. When you are refinancing a home loan, there are times when you should not consider using a mortgage broker too.
Refinancing is a difficult task sometimes if your circumstances are complex; consequently, if the broker tries to charge you a fee too. It is a big decision, so if you feel that it is too expensive, you should not deal with that particular mortgage broker.
Sometimes, refinancing can become a financial burden if the proposed new lender’s offer is not appealing. In times as such, it is best to rely on your gut and not to refinance.
You can get the same information a broker may provide you with all on your own. This can save time to a large extent if you do not have a complex property portfolio. Regardless, we never recommend avoiding the option of using a mortgage broker over dealing with a lender directly.
Also, if you know of a lender personally and the same lender offers an irresistible offer, you can directly talk to them instead of involving a mortgage broker. By doing so, you can save time and secure a deal on your own. In that case, you do not need a broker, as it would be a waste of time, effort and money.
Refinancing is a complicated process. If you think involving a third party can make things much more difficult, then it is best not to involve anyone. If you are able to utilise the bank and are happy with its services, then a direct deal is the best foot forward.
Conclusion
Refinancing your home loan can be a difficult decision. It requires a lot of thought. While making this decision, you must make sure that you are well-informed.
If you are consulting a mortgage broker, you must research them to make sure you work with one of the best mortgage brokers in the market.
Going to a reputable mortgage broker is always the best idea as it avoids any form of scam and complexity.
Yes, mortgage brokers do tend to provide you with the best deal with the best interest rates in the market. In our experience, brokers also being able to negotiate with lenders to come up with a better rate than what is being advertised on the lender’s website. In such scenarios, mortgage brokers are savers to you in the short and long term. Well worth it in every possible way!
Nevertheless, mortgage brokers are the real wizards behind mortgages and so should be consulted in order to get the best deal before deciding to approach any lender ignoring them.
Let us know if you have any questions…
Thanks for reading.
