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  1. #1
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    Default home loan/ refinancing question

    Hi everyone,
    we have decided to do renovations on our house. (we have had it for sale for 18 months with 250000 on it original had 270000, the realestate agents advised us not to drop it any further and we dont really want to anyways). we have decided to stay put and make this into our permanant home.
    we purchased the house for 230000 at the start of 2010 and i think our loan started at 207000. currently we have 22000 in the redraw and a balance of 174 000.
    soon after purchasing the house we changed to fortnightly repayments and a long time later i realised this changed our loan term. our contract is a 30 year term and when we changed to fortnightly it changed our term. so currently we have a 21 year term, when really it should be a 26 year term. so if we take out our redraw money and even look at increasing our loan we dont really want to do this with a 21 year loan term.

    will the bank extend it back to the original term of having roughly 26 years left or could we even refinance to extend it back to 30 years to allow us to extend our loan?

    how does equity work?

    i realise we need to go and speak to the homeloan advisor but just wanting to get a bit of a handle on it now.

    sorry about the essay!
    TIA

  2. #2
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    We refinanced last year but also changed banks. We had approximately a balance of 190k including redraw of about 20k, we needed about 50k for renos so we borrowed $240k from our new bank, they paid the old bank $190k and put the rest into our account. We then put that into the loan as redraw until we needed it.
    From what i know refinancing with the same banks still involves a whole new loan contract for the new amount which means the loan term reverts back to the start of 25 or 30 years.
    Good luck!!

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    We are looking at this at the moment too. I spoke to our bank and they advised us to borrow against the equity in our home. This will keep the same loan and keep the same term that we are at, at the moment. I am not too sure about refinancing. It works out that even though we are borrowing more money out repayments will be less than what we are paying now as the interest rates have dropped about 2% since we started the loan and we haven't adjusted out repayment amount to reflect the drop.

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    Quote Originally Posted by BJB View Post
    We are looking at this at the moment too. I spoke to our bank and they advised us to borrow against the equity in our home. This will keep the same loan and keep the same term that we are at, at the moment. I am not too sure about refinancing. It works out that even though we are borrowing more money out repayments will be less than what we are paying now as the interest rates have dropped about 2% since we started the loan and we haven't adjusted out repayment amount to reflect the drop.
    How do you work out the equity in your home? Do you have to get a formal valuer in etc?

  5. #5
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    Don't quote me, but if you are refinancing it is a whole new loan process so I am thinking that the term of the loan would go to what you specify it as, being 25 or 30 years?

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    The bank does their own personal valuation and it is what the house is worth (say 250,000) minus what you have left on the loan...

  7. The Following User Says Thank You to BJB For This Useful Post:

    Mummy12  (12-08-2013)

  8. #7
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    Hi Tia

    First question would be how much you want to borrow or if you just want to get the redraw out of the loan?

    A redraw is the extra money you pay on your loan building up and making you ahead on your loan. You should be able to take this money out of your loan without dramactically changing the loan term or repayments. By paying your loan fortnightly rather than monthly would have helped you get ahead.

    It sounds a bit funny that your loan term changed when you changed to fortnightly repayments. The loan term is based on your original contract and shouldn't have changed because of your change in repayments. However how quickly you will pay it off will change and paying fortnightly would cut a few years off your loan so i would say that your original term is still the same and the 21 years will be when the loan will be paid off (which will be ahead of the loan contract).

    if you originally borrowed 207000 based on a 230k purchase price or the market value of the house, that means that you borrowed 90%. Generally if you borrow more than 80% of the purchase price you will have to pay Lenders mortgage insurance. Do you remember having to pay this? If you did you may be up for additional fees if you borrow more money against your home.

    If you are wanting to borrow more money (not just redrawing the money) the bank will get your house revalued and will calculate how much money you can Borrow. It is normally 80% but with the lenders mortgage insurance it can sometimes be up 95% of the house value.

    Another thing to note will be that if you are doing renovations that may increase the value of the house they will take that into consideration. For example if you were adding more bedrooms or an additional bathroom if would generally add value to the house so they would base their valuation on the improved value of the home and may allow you to borrow more money. If they do this they may want to control the builders payments etc.

    Sorry if I have been super confusing, hope this helps!

  9. #8
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    Btw- I am an accountant but before child I was a commercial bank manager for 1O years so if you have questions, I might be able to help you out.

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    Also, not sure whether it affects you, but in our case with borrowing against equity (it is the same loan) so no loan application fee and no valuation fee to be paid, but as we paid lenders mortgage insurance when we bought the house, and now we are increasing the loan amount we will have to pay a little more into LMI to make up the difference on the higher loan amount (if that makes sense)

  11. #10
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    Quote Originally Posted by Ashfirst View Post
    Hi Tia

    First question would be how much you want to borrow or if you just want to get the redraw out of the loan?

    A redraw is the extra money you pay on your loan building up and making you ahead on your loan. You should be able to take this money out of your loan without dramactically changing the loan term or repayments. By paying your loan fortnightly rather than monthly would have helped you get ahead.

    It sounds a bit funny that your loan term changed when you changed to fortnightly repayments. The loan term is based on your original contract and shouldn't have changed because of your change in repayments. However how quickly you will pay it off will change and paying fortnightly would cut a few years off your loan so i would say that your original term is still the same and the 21 years will be when the loan will be paid off (which will be ahead of the loan contract).

    if you originally borrowed 207000 based on a 230k purchase price or the market value of the house, that means that you borrowed 90%. Generally if you borrow more than 80% of the purchase price you will have to pay Lenders mortgage insurance. Do you remember having to pay this? If you did you may be up for additional fees if you borrow more money against your home.

    If you are wanting to borrow more money (not just redrawing the money) the bank will get your house revalued and will calculate how much money you can Borrow. It is normally 80% but with the lenders mortgage insurance it can sometimes be up 95% of the house value.

    Another thing to note will be that if you are doing renovations that may increase the value of the house they will take that into consideration. For example if you were adding more bedrooms or an additional bathroom if would generally add value to the house so they would base their valuation on the improved value of the home and may allow you to borrow more money. If they do this they may want to control the builders payments etc.

    Sorry if I have been super confusing, hope this helps!

    thanks for your help i have a few more questions if that is ok,
    hanks that is very imformative.
    one thing i was worried about is that when we applied for our loan i was working a lot more probably clearing 1200-1500 a fortnight, but dh was earning less than he does now. now i am earning a lot less doing casual nightfill at a supermarket once they change my tax to include the tax free threshold i will be clearing around 250-260 a week so around $500 a fortnight. dh generally clears around on average 1800 a fortnight. we are quite good with money and live very comfortably (live in a regional area) and therefore pay quite a bit extra off our homeloan.

    do you know how this would effect our chances to increase homeloan, due my drop in income and casual employment (Even though we pay a lot extra off the homeloan)?

    my parents would probably be willing to guarantor if need be.

    thanks so much for your help


 

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