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Defining Home Loan Refinancing Jargons

10/05/2022

If you haven’t been into real estate transactions, you may find certain terms and jargons a little bit overwhelming. But the moment you plan to purchase a property, you will soon be immersed in the technicalities and common knowledge of real estate, home loan refinancing, investment property and more.

So, before you dive into your first home loan, this article will help you with some background about home loan refinancing and mortgage terminologies.

What Are the Terms or Jargons Commonly Used in Home Loan Refinancing?

Let’s review some technical terms and definitions used in home loan refinancing.

Home Loan

A home loan is the amount of money lent to a borrower by a bank or a loan provider for the borrower to purchase a property. Typically, a home loan term lasts from 25 to 30 years.

Home Loan Term

A home loan term is a period you will have to repay your home loan, both the principal and the interest.

Principal

A principal is an actual amount you borrowed.

Interest Rate

An interest rate per annum is the interest you need to pay on top of your principal for a year. Some loans have a variable interest rate that changes over time and with how much you have paid. Others have a fixed interest rate.

Annual Percentage Rate

Your annual percentage rate (APR) is the total amount you must pay on your home loan, including the interest and other fees. It is expressed as a percentage of your home loan. Some home loans offer a fixed or variable APR, like an interest rate.

Comparison Rate

Also known as the actual loan rate, the comparison rate comprises the interest rates and all fees. To decide where to get your home loan, it is important to check the comparison rates of your prospective lenders or banks.

Establishment Fee

Some lenders will charge you an establishment fee to complete all paperwork necessary to finish setting up your home loan.

Account Keeping Fee and Annual Fee

Some lenders will charge you these fees to maintain your account and cover the administrative tasks that come with it.

Refinancing

Refinancing refers to the process of moving from one loan to another loan with different terms or rates and in a home loan, refinancing means taking out another home loan to pay out your current home loan. 

You can get a home loan refinancing from your current home loan lender or a new lender. You can consider refinancing your home loan if you are not satisfied with your current one or if you have found another one that is more convenient for you. 

Refinance Appraisal

Professionals do a refinance appraisal to know how much your home is worth. When you apply for a home loan refinancing, your lender will do a refinance assessment of your home. This will help them decide how much money they can lend you.

Home Equity

Home equity is also an essential factor in getting a home loan refinancing. It is how much you own your current home. More specifically, home equity is calculated by subtracting your current home loan balance from the value of your home.

You may also work with expert brokers who can help you understand more about these terms and home loan refinancing.

How Does Home Loan Refinancing Work?

In a home loan refinancing, your new lender will pay off your current home loan to your current lender through your new home loan amount. Once the old loan is closed, you start paying off your new home loan. 

The process works when you refinance and get that loan from the same lender. But the good thing is that the old home loan will close, and the new loan term is like a newly turned leaf for you to pay for.

Benefits of a Home Loan Refinancing

Refinancing your home loan will give you numerous benefits, which include the following:

  • Home loan refinancing can be your way to an early settlement of your initial home loan.
  • You can choose a home loan with a significantly lower interest rate than your current one.
  • Whilst you are borrowing just enough to pay off your current home loan, refinancing your home loan will mean a shorter loan term.
  • Refinancing allows you to choose a fixed or a variable interest rate and APR on your new home loan, whichever is more convenient for you.
  • The best benefit you can get from a home loan refinancing is greater potential savings. A lower interest rate and shorter loan term will save you a substantial amount. Most lenders allow a 30 to 60 days grace period before their borrowers pay their initial payments. This amount of time will help you save money.

When Should You Refinance a Home Loan?

You should consider refinancing your home loan when:

  • Your current lender is offering a lower interest rate for new home loans.
  • You have found a new home loan with a competitive rate from another lender.
  • There is a significant change in your status, like a career change, expecting a kid or anything that affects your finances.
  • You settle your home loan earlier and start a more convenient loan obligation.

Refinance with Investorfi

When you understand all the technical terms involved in home loan refinancing, its benefits and how it works, you can easily consider whether refinancing your home will work for you. Investorfi is here to help you if you have any questions.

Here at Investorfi, our team includes experienced professional mortgage brokers who are more than willing to help you with your home loan and refinancing decisions. We will find the best home loan rates and deals that suit your needs. Our financial advice for your personal or business financial strategies will surely enlighten you on your next big step in home refinancing.

Contact us and build your new dream home.

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A Broker worth their salt has a playbook of ‘scenarios’. They are finance strategies that have worked in the past. He will offer up one, two or even three scenarios that he thinks will work best for you. 

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Gone are the days a single income could afford 2.5 kids, a pet, and a four-bedroom house in the burbs! 

At InvestorFi, our sole purpose is to reinvent the great ‘Australian Dream’. Because we believe it’s every citizen’s right to the security home ownership affords our families and community, not just for today but for generations to come.

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