There a range of factors you should consider when looking to refinance any loan.
The first thing you need to ensure is that the refinance is not triggered by emotion or an impressive headline rate.
The next step is to make sure you compare the exact circumstances of your existing facilities with the exact circumstances with the proposed facilities. i.e. are the repayments being proposed lower only because the loan term is being extended. If this is the case, you could be unravelling all of the hard efforts you have already placed into your debt reduction strategy.
When we look to refinance a client’s lending facilities we adopt some basic principles based on sound long term objectives that help you meet the end financial goal.
These are:
- The outcome improves your financial position beyond what a rate matching exercise with your existing lender.
- You are able unlock additional equity for further or future investments as advised by your financial planner and accountant.
- It creates a more convenient structure whether that be for tax or cash flow purposes, reducing the number of loans or facilities.
- It provides you the ability to unencumber assets from the Bank.
- Penalty and exit fees (particularly fixed rate break costs).
- Time frames. No point in refinancing for the long term when the short term actions undermine the proposed savings and benefits.
- Are you refinance fit and ready. i.e. are your payments up to date, limits in order and tax returns completed.
- The payback period. If there is a cost involved in refinancing when will the new structure provide sufficient pay back to recover these costs.
Your goal to refinance should never be just about the rate. Interest rates are constantly fluctuating (by design, due to market and competition forces and as a result of regulatory changes). So you if rate is your thing you need to be comfortable in knowing that the best rate today may be tomorrow’s worst.
We can’t remember a time in the past 20 years where rate movement and adjustment has been so pronounced. So if you are considering the option to refinance, restructure or consolidate you should look through our items of considerations and speak with an expert like Crosbie Finance so that all aspects of your finance position and strategy can be reviewed.
Once you have established the competitors lending rate and factored in all fees, taxes and charges, you will need to do your sums. Your new rate must be attractive enough to cover the expenses and leave you in a better financial situation in the present and moving forward. Finding the break-even point and saving money should be the major factors that are used to determine your decision.
By Sean Gillard, Partner at Crosbie Finance