Are you about to sell your home or upsize? Then you should be looking to refinance your home loan and make the most of the best home loan deals currently on the market.
This could potentially help you save thousands a year and even shorten the life of your home loan. The best part is that the home loan market is pretty cut throat, which puts you as a borrower in the driving seat. But people seem reluctant to refinance – why?
The simple fact is that there is some work involved researching an admittedly crowded market. Some people also find working out the difference between all the home loan deals confusing, while others simply don’t have the time.
Let’s start by clarifying what exactly refinancing is, and why you would consider it if you currently have a home loan.
What is refinancing?
Refinancing is a fancy term for getting a new home loan from a new home loan provider. It’s also known as switching.
Refinancing could make sense in a number of scenarios, but most commonly it’s to take advantage of a lower interest rate. You can refinance at any time if you currently have a variable rate home loan, as there are no fees associated with this.
“You can refinance at any time if you currently have a variable rate home loan, as there are no fees associated with this.”
If you have a fixed rate home loan it’s a little more complex – you can switch but you are likely to have to pay a ‘break’ fee. Depending on how much it is, it may be more cost effective to stay with it until the term of your loan (typically 1 – 5 years) is up.
6 benefits of refinancing your home loan
Refinancing your home loan does take some legwork, but the benefits are pretty cool, including:
- Getting a lower interest rate on your new mortgage, which means your monthly repayments are also less.
- Reducing or extending the length of your loan, depending on what suits your current circumstances. If you are able to pay more every month you will pay off your loan in less time. If you can’t afford your current repayments then refinancing can give you some breathing space.
- Accessing useful features, such as having an offset account or being able to make extra repayments on your loan – which could both result in you paying off your loan sooner. Some loans also bundle a range of products – like a current account and credit card, along with a home loan – into a single package with one fee.
- Unlocking the equity in your home, if your property increases in value over time refinancing can help make the most of this wealth. This is great if you need to access this money for something – like a renovation.
- Refinancing allows you to leave an expensive, specialist home loan for a more competitive traditional home loan with a much lower interest rate.
- Switching means you can take advantage of special offers, promotions and incentives that new lenders may have – like waiving some fees.
When refinancing your home loan is a bad idea
Refinancing is not always a good idea, however, especially if these circumstances apply to you:
- You have a fixed interest home loan that you are locked into, and where the break or early termination costs make it too expensive to switch.
- If switching to a new home loan is too expensive, specifically because of all the associated costs – such as application, settlement and valuation fees and if you need to pay Lenders Mortgage Insurance (LMI).
- If the new loan doesn’t have any features that make the switch worthwhile – including the ability to have an offset account or make extra repayments.
Things to consider before refinancing your home loan
Before you jump ship it is worth contacting your existing lender and ask them to improve your offer. If you always pay on time and have been with them for more than a few years they are likely to want to keep you. They could agree to waive fees and even lower your interest rate.
The trick is to know what deals are out there and negotiate from a position of strength. It’s also worth haggling – you never know what they may offer!
Now that we have looked at the pros and cons of refinancing and want to know more about the process of switching, including some tips on refinancing your home loan then follow these 5 steps on how to refinance your home loan.
7 Steps To Refinancing Guide
Interest rates are constantly changing and if your wanting to potentially save thousands on your home loan, refinancing a home loan is your best option.