Without a doubt, refinancing can bring a range of benefits that enable you to repay your house loan on more favourable terms. Nevertheless, although we know the theory, sometimes it can be difficult to pinpoint whether a financial solution is the right one for us. That being said, today we will have a look at the differences between internal and external refinancing, and what each implies.
Essentially, refinancing is an excellent solution as it gives you the chance to fix your loan terms. Also referred to as balance transfer, this procedure implies selecting a mortgage that is excellently suited for your needs, when compared to your existing loan conditions.
Types of Refinancing
You can choose from internal or external refinancing. Internal refinance implies altering the mortgage but staying with the same lender. On the other hand, external refinance involves switching both the mortgage and the lender.
Irrespective of your choice, you should assess a range of elements, to ensure that the loan works for you. Next, we will evaluate the internal and external refinancing issue.
The Differences Between Internal and External Refinancing
According to an Australian Mortgage Council survey from 2014, more than 30 per cent of consumers aren’t satisfied with their existing lenders. Typically, this is caused by poor communication and deficiency of mutual understanding.
Another survey indicates that over 50 per cent reckon that they could get better deals if they switched lenders.
This is where refinancing could help.
If your current lender doesn’t comprehend your needs, you could choose another lender with whom you communicate better. In this situation, external refinancing could be your best choice.
Bear in mind that even though lenders aren’t permitted to charge exit fees on home loans, you could still be held liable for early repayment and break fees. Also, to get the most out of your refinancing offer, you should be outspoken regarding your long-term financial goals.
Internal and External Refinancing – the Downsides
No matter how much we discuss internal and external refinancing on the pro side, we must also take a closer look at the disadvantages. When it comes to refinancing, there are a couple of things that every customer should consider before requesting this service.
Firstly, you will need to check the market in order to find the best option for your loan. This can be a tricky thing because if you have little to no knowledge about internal vs. external refinancing, you might end up doing more harm than good to your finances. Ask an expert to see if the offer you found is good for your financial situation.
Another thing you will have to learn is that while a low-interest rate is a great thing, internal or external refinancing can come with a lot of fees and costs that you probably haven’t heard about. You will have to pay an exit fee; you will have to pay for all the documentation used and for the new loan.
Some customers may experience limitations with internal and even external refinancing. Some may have their refinance requests denied based on their financial situation or credit history. All in all, it is not as simple as one would expect.
In fact, if you don’t do the math, you might end up getting a bad deal and going back to the original loan might be near impossible. This is why research is detrimental, and that is why you will need expert advice if you don’t know how these services work.
When Is the Perfect Timing to Refinance?
According to research, more than 30 per cent of Australians aren’t acquainted with their loan’s interest rate. That being said, it is important to inform yourself regarding the amount of interest rate you pay on a monthly basis.
The good news is that, based on RBA Cash Rate, interest rates have diminished by 2.25 per cent since 2012, which is excellent especially if you want to consider refinancing.
Consequently, every few years, it’s best to review your home loan terms. The loan market is competitive. That means brokers offer compelling offers to attract new borrowers.
That being said, when it comes to internal vs. external refinancing, it’s all about selecting an offer that is more competitive than your current one, whether it’s from your existing lender or not.
Extra tip: Ideally, you should discuss this problem with your loan provider, who should indicate the amount of interest you currently pay. Afterwards, you can compare your interest rate with the ones on the market.
We hope that our article focusing on internal vs. external refinancing has been helpful. If you’re on the lookout for an attractive refinancing option on your home loan, make sure you visit www.australianlendingcentre.com.au. Our qualified experts are eager to offer you the most convenient offers! You also give you a free consultation for more information regarding this topic and other financial services and products.