We built our own home last year, and we now have about $40,000 of equity. I want us to look into refinancing to free up about $10,000 so we can get everything finished (we've got no heating, air con, light fittings and some rooms are still missing curtains!), and also for our trip back to the UK next year. DH doesn't think its a good idea - he's a numbers man, and he's worked out how much more in interest we'll have to pay, and all that stuff. I just think that to save up for everything that needs doing will take us a looooong time! I do quite like the idea of a line of credit and an offset account - i think that might be the way to go.
i would speak to a financial advisor, not through your bank, but an independent one. your dh is right, it will cost you a huge amount of interest; at the same time, you need to live in a house that is completed though. so get an advisor to crunch all your numbers so you can weigh up your options. GL
Do you have any available redraw - ie money additional to the repayments. If you redraw, you don't pay any extra interest on that money exactly - yes it will extend the period of your loan in the long run and therefore extra interest, but refinancing is different to redraw.
I couldn't do it. I got all the curtains and whatnot on Ebay pretty cheap. Haven't even made the first repayment on the house though, nor have we sold the old house yet. We put in a massive deposit but just can't borrow more anyway.
Our bank has pretty savage break fees in the first four years so we won't be refinancing. We need a new car (or a change in baby seat legislation, or one less children) but its going to have to wait until we save up some serious money.
We have no heating/aircon/light fittings either. But like everything else, just blew all our savings on the deposit so we've got no choice but to save up. There's just, quite simply, No Other Options.
well, at the moment, we're back to the original plan of saving...I know it will all get done eventually! So far, the only curtains we've actually bought are the blinds in the study; we were given the curtains in the lounge and DS's room, and DD's and our room still has sheets. The only room with a light fitting is the study...but it was a screw in light cover that we were given.
I do think that in a year or 2 we would probably get a better deal than we have now, so we might re-finance then, but whether we increase it or not, I don't know. I guess I'm just impatient lol!
I see both of your POV. I see his side that it will take longer to pay it all back. But I see yours in that you can put everything off forever, and sometimes doing these things can be important to you. For me I am desperate to travel, and I don't want to wait until the house we are building is totally paid off. I think a balance is a good idea. What things can you wait for? And what things do you feel are really necessary to do now?
If your DH has crunched the numbers and they don't add up right then I would agree with him and say that now is not the time to refinance. You don't need to save up for everything that needs doing just do it bit by bit.
I think for finishing off the house (making sure you get quality), it is acceptable. For an overseas trip? Well, no, that is something I feel it better saved for.
Been there with the refinancing thing before and it is so easy to get into the trap of tapping into that equity, when we really needed it we could no longer access it.
For an amount as low as that I would suspect there will be cheaper way to find the finance, such as a personal loan or credit card. However if you were looking to pay off debts/purchase a new vehicle and take an overseas trip and needed around $40,000 then refinancing would be a good way to do it usually.
Another thing to remember is that if you only built the house last year then you are possibly tied in for a minimum period and would have fees to pay if you refinanced. You could add an extension onto your loan to raise the finance but remaining with the same lender, but usually they will have a minimum amount that they will do that do and it's often in the region of $25,000.
The cheapest way to do this is with a supplementary loan. It's basically a secondary loan to your home loan, you get home loan rates and fees, which are a lot cheaper than a personal loan or credit card, but you can have a much shorter loan term. You wouldn't want to refinance the whole loan and be paying off your holiday and light fittings over 25 years, it would cost you a bucket load of interest and any benefit you get from it (i.e. the holiday and light fittings) was used up long ago.
Traveller is right though, there's usually a minimum amount for this, and depending on your bank it could be as low as $10k.
Borrowing the additional as a top up or supplementary loan would be what I'd do, for the renos, unless the refinance is with your current lender and it'd still reduce your repayments (if that's important)
If you do refinance, look into whether you can get a partial refund on your mortgage insurance if you paid it. If you pay out a loan in under 18months you can sometimes get some of it back
I would imagine breaking a loan after only 18 or so months would incur huge exit fees as well which would be far more than the $10,000 you want to extend the loan by....you need to get a broker to look at your contract carefully for you or the $10,000 you want could end up being an extra $25,000 or more once you include exit fees, early termination fees, re estblishment fees (as it would be a new mortgage), etc etc. I agree a supplementary loan or a personal may end up being a better course of action for such a small amount of money.
I think it depends whether your loan is fixed rate or variable.
If it's fixed it could cost a lot to get out of it early and it depends on wholesale interest rates.
If it's variable rate it could be a lot cheaper. It just depends what's in your contract, and who you refinance with (i.e. NAB will pay your exit fees for a variable loan if your go across from specific banks)
My career is in banking, and I know a little about home lending etc... As you built your home last year, I would guess that you're going to be locked into that contract for another 3 or so years, so even if you do find a better deal in a years time you're still likely to pay deferred establishment fees (def), early repayment adjustment (era) (if your loan is fixed) and forfeiting the amount paid in lenders mortgage insurance (lmi). If you kick up a stink you may get a partial waiver on the def and/or era if you're lucky, but it is almost impossible these days to get any form of refund on lmi - it's written very specifically and cleverly into the terms and conditions for both the loan and the lmi.
Kaytee and Pandora had exactly the right idea of a supplementary loan, you could even possibly get the supp loan as a line of credit (loc) if you were super keen, but locs can be dangerous if you're not disciplined. If you get a normal supp loan you can get it over a much shorter term, which means much less interest and you can pay it off faster than the 30 (or whatever) years of your mortgage. It means you pay mortgage interest rates, and can treat it as a small personal loan.
Also, if your bank has the product, I'd recommend looking into whether you can have an offset account as your everyday account and linked to your actual mortgage. Even if you don't have heaps of cash in there, every little bit counts and will save you guys interest and effectively shorten your loan term. It's worth looking into that even if you guys decide not to borrow anymore right now. Most banks can do a product transfer on an existing account to change it to an offset account, keeping the same account numbers, which means no changing direct debits or salary payments, yay
Regardless of when you actually built your house the DEF (as mentioned by Sepata aboeve) that you will pay if you were to pay this loan out will differ depending on which lender you went went at the time. As of 1 July of this year no new home loans can include any DEF however all loans that settled prior to them included DEFs. They last for traditionally 4 years from when your home loan is taken out. Depending on what the ratio between your loan amount and the original value of your property was you may have paid LMI (as mentioned also by Sepata). You may be entitled to a partial refund of this payment if you pay out this loan in the first 1-2 years but the % you get back is not that high.
You have mentioned that you now have $40K equity in your property while this may mean that you can borrow against it whether you can or not will be dependent on what the property is valued at. For example if property was valued at $300K and you had $40k equity or if property was valued at $600K and you had $40K equity will produce different answers.
Sepata's advice regarding offset account is really good. Basically is means that you put all your extra cash into that account which in turn reduces the interest that you will pay on your home loan.
On one hand you are picking a good time to look at re-negotating as the banks are all super competitive with their rates at present looking for new business. However you need to weigh up all the costs if you were to decide to change lenders. Getting an idea on what rates the other lenders would charge would be a good idea before you could approach your own bank/lender so you can try to get them to improve their rate to you without you incurring any fees.
if you can get a supplementary loan that would definitely be cheaper than taking a personal loan or using credit card.
refinancing...would you do it?
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