The home refinancing process may seem puzzling due to the perceived number of home loan refinancing options available however if property owners take the time to familiarise themselves with the home refinancing process and available loan choices I am sure they will find the process is rather simple.

In this editorial I will draw attention to the core home loan refinancing options to be considered as well as some vital factors that must also be considered in order to determine whether refinancing your home is sensible or not.

Home Loan Refinancing Choices to consider.

There are truly only a few core home loan choices for homeowners to decide on when considering the likelihood of refinancing a home. These choices are the type of home loan which is either Standard or Line of Credit and the type of interest rate which is either Variable or Fixed.

A Standard Loan is the usual type of home loan that requires full repayment during the loan term and a Line of Credit is a advanced type of home loan that only requires repayments of interest during the term of the loan. Fixed and Variable rates are the 2 types of interest rates accessible and additionally there is what is known as a Hybrid Loan which is really a loan structure consisting of mixtures of the previously mentioned choices.

A fixed interest rate will stay fixed or constant throughout the duration of the fixed interest rate term. Fixed interest rate periods available in general vary between 1 - 15 years. A fixed interest rate is more desired in a rising interest rate environment or when surety of repayments is desired.

A variable interest rate is one that can vary during the term of the loan. The rate is generally tied to an index such as the RBA Cash Rate in Australia or the Prime Index in America and is responsive to deviation in accordance with the index. A variable interest rate is more desired in a declining interest rate environment or when loan flexibility is required.

A Hybrid Loan is only a home loan configuration which can have a mixture of home loan types and/or rates. An illustration may be a configuration where 50% of the home loan is a standard type with a variable interest rate and 50% is a standard type with a fixed interest rate. Then again the Hybrid structure may consist of 3 parts with one being a Line of Credit.

After picking the Home Loan , consider the Closing Costs and Set-Up Costs.

The closing costs linked with refinancing a home ought to be carefully considered prior to determining whether refinancing is an option. These costs are quite often overlooked and often can be quite significant. Closing costs might consist of charges similar to Early Repayment Fees, Break Costs, Deferred Administration Fees, Deferred Establishment Fees, Discharge Fees together with Discharge Agent Costs.

Homeloan Tip: Always check your Loan Contract for full disclosure of the closing costs.

Today, set-up costs requested by the lenders are generally nominal but those associated with Mortgage Risk Insurance, Settlement Agents and Government Charges may at times add up to a considerable amount. It bewilders me though, that property owners whilst refinancing a home, are again subject to several of the identical expenses as when originally buying their dwelling. These costs might include application fees, property appraisal fees, loan origination fees, registration fees, settlement agent fees, stamp duty and mortgage risk insurance.

Homeloan Tip: Always have the finance provider or mortgage consultant supply a costing sheet containing full disclosure of set-up costs.

Evaluate the Overall Benefits as well as the Savings

This is very significant because home loan refinancing is not considered sensible unless it results in a significant financial saving and/or benefits. On occasion great benefit is to be had by property owners strictly refinancing to lower repayments or accessing extra funds for lifestyle events and there is no major concern with savings while others consider the importance of refinancing lies within the savings.

Homeloan Tip: When determining whether or not to refinance, overall savings is important but it is only one factor that homeowners should consider.

The amount of savings the property owner can realize is mostly reliant on the differential between the old and new interest rates factored in with the amount of time the home owner intends to hold on to the home loan for. It's also significant to note that the quantity of money saved from the lower interest rate over the new loan term is not the correct amount of the savings. For correct savings the homeowner must take into account the closing costs, set-up costs and difference in interest to be paid over the new loan term as compared to the old loan term. A negative number would point out that the interest rate saving of the new loan is insufficient to cover the home loan refinancing costs. On the other hand a positive number would show an overall saving.

Armed with this information a property owner should be able to make an informed decision as to whether home loan refinancing is a sensible proposition or not.