Have a mortgage, but not sure when to refinance?
Refinancing can help you save money and could also give you access to useful features like a redraw facility or offset account. But there’s more to refinancing than simply looking at the advertised interest rate of a new home loan offer.
You need to work out if refinancing is worth it, as there are costs associated with switching. There’s also the crucial point of timing and working out when it’s the right time to refinance.
Read our article to get a general understanding of what you need to know about refinancing, including the why, when, and other major factors to consider. Let’s start by defining and understanding the term.
In simple terms, refinancing involves moving from one loan to another with a different rate or terms, either with your current lender or a new one.
There are many reasons that someone might decide to refinance, and your personal circumstances will dictate if it is right for you. Here are some of the most common reasons people switch:
If you’ve been with the same provider for a number of years, you may have been paying a “loyalty tax”. There are often offers for new customers, or interest rates may have changed since you signed up. By reviewing your interest rate, you may be able to determine whether there is a loan option that will enable you to save with lower monthly repayments or help you pay down your loan faster.
If you’ve been able to repay a substantial portion of the principal part of your home loan, refinancing can help you access these funds. This is called the equity in your home, which is the difference between your property's value and the amount you still owe on your property. This could fund a major renovation to your home or be used to purchase an additional property.
If you have accumulated a range of debts alongside your current home loan, you may be able to consolidate all these into a new mortgage. This could save you money and make it easier to manage your finances.
If you’re on a fairly basic, ‘no-frills’ home loan, you may want to access more useful features like an offset account or redraw facility. These can not only help you repay your home loan sooner, but could also suit your current personal financial needs better.
You also may want to explore how switching to a loan with a shorter loan term could benefit you. If you’ve increased your income, you may have the ability to put more towards your repayments. You could also opt for a longer loan term if you want to reduce your repayments, though this will mean you pay more in interest over the life of the loan
Now let’s look at timing, and when you can refinance a home loan.
You’re able to refinance at any time, though there are costs when refinancing a mortgage and applying for a new one so you need to be sure that the benefits of refinancing will outweigh these costs. Often lenders will offer refinancing rebates to help cover these costs.
There are some scenarios where the costs of refinancing may be prohibitive. First, if you have a fixed-rate home loan, break costs can be quite high so it may make sense to wait until this period is over. Second, if you have less than 20% equity in your current property, refinancing may mean you will have to pay lenders mortgage insurance (LMI). If this applies to you, calculate if it’s worth the additional cost of LMI.
Speaking to a Doorsteps Finance broker may help you to understand whether refinancing is suitable for you as not only do they keep up to date on the home loan landscape, but they also take your personal situation into account to help you find the best product for your needs.
You can refinance as often as you want, though as we’ve detailed here, from a cost perspective, it often doesn’t make financial sense to do this too early, or too often. Your financial circumstances will also play a part in determining if switching home loans make sense for you.
Take a close look at your finances and ask yourself these questions before you make the call to refinance:
Ready to refinance? Here are the next steps to start the process.
If you’re refinancing with your current lender, you’ll still need to apply for the new loan, though with less supporting documentation.
If you’re switching to a new provider, you will have to provide all supporting documentation, including confirming your personal identification, proof of income, assets and liabilities, and records of recent bank statements.
The lender will then conduct a valuation of the property and assess your application. Once approved, they will send you the loan documents to sign and arrange for your existing loan to be discharged and paid out.
If filling out documents isn’t your favourite thing, speaking to a Doorsteps Finance broker can be a great idea to streamline the process. Not only will they take care of most of the paperwork, they’ll also do a thorough comparison of a variety of loans and lenders to ensure you get the best product for you.
You should now have a good idea of what happens when you refinance a home loan, and be able to make a more informed decision based on your personal circumstances.
Remember, whether you should refinance your home is dependent on a multitude of factors, so take the time to work out if it’s the right decision for you.
Not quite ready? Let’s now look at some alternatives to refinancing.
If you have worked out that refinancing doesn’t make financial sense for you, there may be some other options to consider. However, the options available to you will depend on your individual circumstances and you should seek independent professional advice prior to taking any action.
If you’ve been with the same lender for some time and haven’t just recently taken out a mortgage, then the most obvious thing is to ask your current lender for a lower interest rate. Chances are they want to keep your business and could match what they are offering new customers. If you want to renovate your home you’re also able to opt for a mortgage top-up, which allows you to use the equity in your property to increase your home loan.
You can always ask your current lender for a lower interest rate.
Depending on your individual circumstances, you may also be able to improve your finances by switching from principal and interest repayments to interest only, or by moving from a variable rate to a fixed interest rate loan.
As you can see, there’s a lot to consider when thinking about refinancing. It’s our job to keep track of the home loan market so you don’t have to. Doorsteps Finance mortgage brokers manage the process from beginning to end, providing you with a range of home loan options to suit your budget and needs.
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Disclaimer: Doorsteps Finance Pty Ltd ACN 648 541 879 (credit representative no.531036) is authorised under Doorsteps Solutions Pty Ltd ACN 654 334 246, Australian Credit Licence 537369. Any credit application made through Doorsteps Finance Pty Ltd is subject to approval, terms and conditions, fees and charges.
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