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Home Valuations and Refinancing: Pros, Cons, and Tips

By John Carter

Pros of a Home Valuation for Refinancing

Home valuations for refinancing in Perth follow a similar process to home valuations in many other scenarios. It is a thorough assessment of a residential property so that its value can be determined.

Here are some pros and cons associated with home valuations for refinancing and understanding the process and benefits of a home valuation by a qualified property valuer.

Pros of a Home Valuation for Refinancing

An accurate Current Market Value: When refinancing a property valuation is essential. Home valuations provide an objective and professional assessment of the property’s current market value. This can be helpful for both the lender and the borrower to ensure that the loan amount accurately reflects the property’s worth.

Comprehensive Equity Assessment: A home valuation helps determine the equity in your property, which is crucial for refinancing. If the property has appreciated in value since the initial purchase, it may result in more favourable loan terms.

More Negotiation Power: If the valuation comes in higher than expected, borrowers may have increased negotiating power when discussing loan terms with the lender.

Swifter Loan Approvals: Lenders use house valuations as part of the underwriting process to assess the risk associated with the loan. A favourable valuation can contribute to a smoother loan approval process.

A Consideration of Interest Rates: A higher property valuation may lead to a lower loan-to-value ratio (LVR), potentially resulting in more favourable interest rates for the borrower.

Cons of Home Valuations

Cost: In some cases, the borrower may be responsible for the cost of the valuation. While this is a one-time expense, it can be a downside if the valuation comes in lower than expected, affecting the overall cost of refinancing.

Market Fluctuations: Property values can fluctuate due to changing market conditions. A valuation at a particular point in time may not accurately represent the property’s value in the future. As such, a home valuation may only be valid for 90 days.

Potential Delays: The house valuation process may introduce delays to the refinancing timeline. If there is a backlog of valuation requests or if the valuer encounters challenges in assessing the property, it could extend the time needed to refinance.

Influence on Refinancing Terms: A lower-than-expected valuation may result in less favourable loan terms, such as higher interest rates or lower loan amounts than desired.

How a Home Valuation Fits into the Refinancing Process

A home valuation plays a crucial role in the refinancing process. When you decide to refinance your mortgage, the lender will assess the current value of your home to determine the loan amount they are willing to offer.

Here’s how:

  1. Loan-to-Value Ratio (LVR): The home valuation helps determine the loan-to-value ratio, which is the ratio of the loan amount to the appraised value of the property. Lenders use this ratio to assess the risk associated with the loan. A lower LVR is generally considered less risky for the lender.
  2. Loan Approval: Lenders use the home valuation to approve your loan application. If the market value of your home meets the lender’s requirements, you are more likely to get approved for the desired loan amount.
  3. Interest Rates: The valuation can also impact the interest rates you are offered. A higher appraised value may result in a lower loan-to-value ratio, potentially qualifying you for more favourable interest rates.
  4. Equity Requirements: Refinancing often requires a certain amount of equity in your home. If the home valuation shows that your home’s value has increased, you may have more equity, making it easier to qualify for a refinance.
  5. Private Mortgage Insurance (PMI): If your home’s value has increased, and as a result, your loan-to-value ratio is lower than before, you may be able to eliminate the need for private mortgage insurance (PMI) if you had it on your original loan.
  6. Loan Amount: The appraised value influences the maximum loan amount you can qualify for during the refinancing process. If your home has appreciated in value, you may be eligible for a larger loan.
  7. Refinancing Options: Depending on the value of your home, you may qualify for different refinancing options, such as cash-out refinancing, where you borrow more than your current mortgage balance and receive the difference in cash.

In Perth, as in the rest of Australia, property valuations are typically conducted by qualified professional valuers who consider various factors such as the property’s location, size, condition, and recent comparable sales in the area.

It’s essential for borrowers to be aware of both the potential benefits and drawbacks of the home valuation process when refinancing.