Refinancing homeloan - savings or no credit card debt

[Liviam]

Our home loan is due to be refinanced in the next month or so. I was wondering is it better to have some money in savings or no credit card debt or makes no difference?

Also kind of things do you like/hate about your home loan? Last time we got taken for a ride but that isn't going to happen again.

TIA,
Dan

[BellyBelly]

I would reckon no credit card debt. No expert but what you can borrow etc all is counteracted by existing and potential debt. No debt = less risk. Jmho.

[Amaunet]

If you are getting rid of the CC, then I would say pay them off. If you are keeping the CC, I would say keep your money in savings as you may find the CC debt builds up again and you would have the debt and no savings. Will the savings be coming from the equity in your home you will release on refinancing? If so, can they be sitting in the loan on draw to reduce the amount of interest you are paying?

[BellyBelly]

Ps. We went through a bank recently and got a crap deal in the end. Just found someone who is awesome and deals directly with the providers to restructure the loans to help protect us, save us money and give us a better future for investing. If you want his details drop me an email. Really knows his stuff and knew exactly what the bank had done which was a result of laziness and putting themselves first.

[MLR1901]

Shouldn't matter, as long as your actual home loan is less that it was when you got it. Otherwise you might be able to add some of your debts onto the loan - credit cards for example. The interest rate for them is high compared to home loan rate.
Major thing the lender should look at is the wages, and if you are not utilising more than 60% of wages to debt.
They should also have options for offsetting your mortgage if you have more than 10k in savings.
Good luck hope you get a great rate!

[Rowellen]

We refinanced recently. Credit card debt effects how much you can borrow. This is based on their estimate of the minimum repayment of your available balance. Not your actual balance. We use our credit card but pay it off each month. That doesn't matter to the banks. They nearly weren't going to give us a new credit card (we wanted to change banks completely) but they approved it once we promised to cancel the old credit card.

I like having redraw or offset facilities to reduce interest.
I also prefer the $8 monthly fee as opposed to a $350 annual package fee with the exact same interest rate.
Fixed interest is also nice as the rate was much lower than variable when we fixed last year. Not sure what the difference is now.

[RhiChiChi]

^^ What Rowellen said. The bank/financier will take into your whole debt position. So if you have a $5k credit card, they will assume that at anytime you can max out that credit card, not that you owe X amount or pay it off weekly/monthly etc....

Savings are good to have too though b/c it shows that you aren't just living day to day.

If you are unsure of which way to go someone like Kelly suggested is a good idea b/c they will look at what is the best way to go for your personal situation. The only issue I have is if they are a broker sometimes they will suggest you banking with a certain bank/financier b/c they get a higher fee for referring the loan, so just be aware of that too (most do the right thing by the client though)

[BellyBelly]

He's someone I have known for a few years and didn't click to ask him before - I think because I have moved and not seen him in a while! He has his own business, a finance group, and calls himself a mortgage consultant (he is licensed as a mortgage broker and a real estate agent). I love the fact that he's been investing for over 15 years, so its not just paper experience, sooo happy that he's helping now! He helps people with investment property strategies, debt reduction and cash flow management.

[Liviam]

Thanks Kelly but we have an apt with a finance officer who deals with heaps of different lending agencies and works to get us the best deal and he has no alliances.

Definitely not going to race into a loan this time.

I'll ask about redraw/savings offset and fees.

thanks for the advice. I really need to learn more about these homeloans features in the next few weeks. It's just so confusing.

[LuluHB]

I would definitely get rid of the credit card debt - interest is a killer. Worst comes to worst, if you pay your credit card off at the end of the month but have absolutely no savings, you can still max our the credit card if an emergency comes up.

We've got a pretty good mortgage. It has redraw facilities and its an offset/equity loan (I think that's what its called). Whatever it is, all of R's monthly wages go in there and then we pay all our bills back out of there, pay the credit card off etc. We're with Westpac so I would say the one thing I'm not happy with is that the interest rate is higher than some other mortgages around, but the flip side is that we have fee-free credit cards, savings accounts etc. TBH we should look at changing it, but all our personal and business banking is with Westpac, and like I said tied up with each other, and the thought of undoing all that is just overwhelming at the moment.

[MLR1901]

Another tip: going through lenders or brokers they may have stricter / lenient rules than big 4 banks.
When I worked in a bank, as above they weren't so focused on credit card debt (of course any outgoings were considered) but thy used to more focus on the wage capacity.

[Teeki]

Bit late in the thread here, but I would always get rid of credit card debt before putting money in savings. On a credit card you could pay anywhere between 11 & 20%, in savings you'll earn maybe 4.5%. So in the end, you won't actually be saving anything but you will need to pay tax on any interest earnt.

[Cassius2]

i love to refinance...we recently did as we were feeling that we werent getting a great deal anymore. had a quick look online to see what was available, showed our bank manager and told them we were walking...got a call back that night to tell us that they will better it and drop .10 off the loan rate for the life of the loan (amongst other things).

soooo...my tip would be to get them to take some percentage off for the life of the loan

[Now we're 3]

If you are refinancing the lender will look at your repayment history on your current loan and whether you've made the payments on time. Assuming that is all okay they will include as the others have said a % (normally 2/3%) of your credit card limit as on ongoing expense when they are working out what you can afford to now repay. They will/should ask you questions about what your other ongoing expenses are we they are now obligated by law to make sure you can afford to repay the debt. So for example if you had kids in private school this should be factored in when they are working out how much you can borrower. If you do have credit card or personal loan debt depending on how much you owe on your current loan compared to how much your property is worth it would be worth thinking about consolidating the debts together and closing the credit cards. This way you repay the debt at a much lower interest rate or much quicker if you continue to make the same repayments.

Main thing you need to work out if what you want your home loan to do for you. For example no point in paying a rate to have a redraw for example if you are never going to have extra money in there to actually redraw. At the moment there are some good fixed rates out there which won't be around for long so could be worth while considering fixing part of the loan especially if you can get the good rates.

I work in mortgage industry so pm me if you need any more info. Even if just to run my eyes over the offer that you get from your finance officer to see if it is good or bad.

HTH

[misty]

If you aren't closing the credit cards down, then reducing the debt on them doesn't matter. It is the total limit that is included as a liability - because regardless of whether you have it paid down you are still able to run it back up the next day.

[Liviam]

Thanks ladies. We only have one credit card and the limit is a few grand so it isn't much at all.

I am definitely going to negotiate rates/perks/benefits to ensure we get the best deal we can this time even if it means moving all of our accounts. We got a really crappy deal last time because we just didn't know any better.

thanks for all the great tips/advice. I must admit I still find it really confusing but I'm getting a better understand, I think anyways, LOL!!

[Liviam]

Thanks ladies. We only have one credit card and the limit is a few grand so it isn't much at all.

I am definitely going to negotiate rates/perks/benefits to ensure we get the best deal we can this time even if it means moving all of our accounts. We got a really crappy deal last time because we just didn't know any better.

thanks for all the great tips/advice. I must admit I still find it really confusing but I'm getting a better understand, I think anyways, LOL!!