Find out the key benefits of this process
Is it right for you?
What is refinancing?
The terms refinancing or remortgaging your home loan refers to taking out a new mortgage to repay your existing one. This can be with your existing lender, but most commonly people switch to a new lender. Deciding to refinance can make sense if your situation has changed, it is also wise to think about refinancing if the market changes causing interest rates to vary. Any change in your situation or the market could mean that your current loan is no longer serving your best interests. Below we will explore more reasons to refinance…
Most common reasons for refinancing:
- A better interest rate may be available: If the market has changed and interest rates now are lower than when you took out your home loan, refinancing your home loan may reduce the amount of interest you pay. If you investigate the market history over the past 20 or so years you will see just how drastically the rates have changed.
- To take advantage of special offers or incentives: Some lenders offer special discounts and other benefits to new customers, this can include perks such as reduced ‘welcome’ interest rates and cashback offers. Refinancing to a new lender may let you enjoy these benefits but it’s important to compare the value they offer overall before deciding. Don’t be dazzled by the initial offer, make sure you look into it thoroughly.
- The equity on your property has increased: You may be able to use the increased equity to negotiate better terms on your loan. You may also be able to borrow against that equity to complete home renovations, make investments, or other costly expenses, this is worthwhile considering depending on your situation and current needs.
- You want more flexible features: Changing to a home loan product that allows you to make extra repayments, access redraw facilities or an offset account may allow you to better balance your mortgage payments or even possibly pay the loan off faster. Look into different loan features before deciding and understand what suits you best.
- If your fixed loan home term or interest-only term is expiring: When your fixed-rate home loan term ends, your home loan usually switches to the standard variable interest rate, which may or may not be the best deal for you. It also pays to be aware of the terms and conditions of your current fixed or interest-only loan so that you can plan to revaluate when appropriate.
- You want to consolidate debt: If you have several debts that have different interest rates, it could be very beneficial to investigate consolidating all your debts into your home loan. Home loan interest rates are generally lower than credit card or personal loan interest rates and having just one repayment can make it easier to manage your household budget and take some stress off you.
Important notes to take away:
It is very important that you factor in the additional costs and fees that come with refinancing your home loan. At a minimum, you’ll need to pay discharge fees to your current lender as well as application fees and mortgage registration fees to your new loan provider. There may also be a break fee (sometimes called an early payment fee) if you have a fixed interest rate home loan and switch before the end of the fixed term. There’s no limit to how many times you can refinance your home loan. However, you might want to check if any waiting periods apply to your current loan, or if there are any fees or charges associated with ending or changing your existing loan that you will need to consider.
The refinancing process in Australia typically takes between two and four weeks, depending on your situation and the lenders involved.
The most important thing to consider is whether it makes sense to refinancing when you add up all the costs, such as early repayment costs, loan approval fees and other additional fees. If you need some guidance through this process, give our experienced team of brokers a call. We can assess your current situation and give you individual advice.
Disclaimer: This blog post has been prepared by a member of Account(able) Home Loans and Finance as an impartial sharing of information. No specific individual recommendations have been made or implied and in no way is this text to be deemed as individual advice.