How often should you refinance your home loan?

Taking out a mortgage is a long-term commitment with most having 25- to 30-year loan terms. But a lot can change during that period for borrowers. Financial needs, interest rates, and other economic factors could mean that your original home loan may no longer meet your needs. 

The good news is you can always refinance. Refinancing is essentially switching from your current loan to a new one. You could potentially save thousands on your loan by refinancing. But how many times can you refinance a mortgage, and when is the right time to do it? 

How often can you refinance? 

There are no rules on how often you can refinance your home loan. As long as you meet the lender’s credit requirements, you could refinance your home loan. A lender may look into your credit history, income, and the asset criteria you had to pass to get a loan in the first place. 

Whether you’ve had the loan for six months or 20 years, refinancing can be a viable solution to save money and can be considered whenever your circumstances change, or you feel your rate isn’t as competitive as it should be.  

Refinancing has a range of benefits, but it’s also a serious and expensive undertaking. Take note that every refinance application will decrease your credit score, which could affect other aspects of your finances. It’s important to understand the costs associated with refinancing and ensure these don’t outweigh the savings and benefits you’ll receive. 

Why should you refinance your mortgage? 

Since you can refinance your home almost as often as you want, the next step is knowing when to refinance. Here are some reasons when refinancing a mortgage could be a good idea: 

• Get a lower interest rate - Lowering your interest rate will reduce your minimum monthly repayments, putting more cash in your back pocket. Additionally, it will reduce the interest you pay over the life of your loan, potentially saving you thousands of dollars. 

• Modify your loan term - Refinancing allows you to increase or decrease your loan term, from 25 to 30 years, for example, or vice versa. Increasing your loan term could lower your monthly repayments, making it easier to manage your loan payments. Meanwhile, decreasing your loan term means you would pay off your loan quicker and reduce the interest paid. 

• Consolidate your debt - Refinancing can help you consolidate multiple debts onto your cheapest interest rate, which is usually your mortgage. This allows you to manage your debts more easily as everything is in the same place.

• Access new loan features - You could take advantage of offset or redraw facilities, or make additional repayments on your loan, things your previous loan may not have allowed. This could help you pay off your home loan faster and save on interest. 

• Access equity - Equity is the amount you have paid off on your loan, and when refinancing, you can access this money. You could use it to leverage a lower interest rate, use it for a deposit on another home, or use it on a holiday or renovations. 

When should you consider refinancing? 

Generally, it’s a good idea to review your mortgage periodically to see if it’s still suitable to your circumstances and offers good value. 

If your financial situation has changed considerably, a mortgage refinance could be worth it. Significant changes to your circumstances, such as switching jobs, having kids, or experiencing financial windfalls or setbacks, can trigger a review of your major financial commitments, including your home loan.

Another opportune time to review your mortgage is at the end of a fixed-term loan. Fixed-term loans often have a lower rate for the fixed period and revert to a higher than standard variable rate, increasing your monthly repayments. 

You could also consider refinancing based on cash rate cuts and the market. If you feel that the current interest rate on your home loan isn’t competitive, it may be time to refinance. 

Keep in mind, refinancing is not for everyone. If you plan on selling your home in the next year or so, then refinancing may not be an ideal choice. For those without a stable source of income or whose credit scores have decreased, refinancing could make their loan more expensive because they may not be eligible for better rates. 

What should you consider before refinancing? 

Prior to refinancing, you need to think carefully about whether it makes financial sense to replace your old home loan or not. Here are some things to consider before you decide to refinance your home loan:   

• Costs – There are certain costs to refinancing, like loan application fees for new loans, mortgage discharge fees, or break costs if your home loan has a fixed rate. Some lenders also offer a "no-cost" refinance, which usually means that you will pay a slightly higher interest rate to cover the closing costs. 

• Lenders Mortgage Insurance (LMI) – If you have less than 20% equity in your home, you may have to pay Lenders Mortgage Insurance. This is because you cannot transfer the existing LMI to the new loan, even though your previous lender is no longer at risk. 

It’s imperative that you do your research and compare your current home loan to the new loan you’re considering, ensuring that you really will be better off. 

How easy is it to refinance a home loan? 

The home loan refinance process differs depending on the lender, some may be lengthier than others. Since you’re leaving your current lender and moving to a new one, there will be a lot of paperwork and documentation involved. If you have all your requirements ready, it could move faster. 

At loans.com.au, our process is quite streamlined, so borrowers can save time and money sooner. With our FastTrax Refi system, we pay off your old loan before sending any paperwork to discharge it. As a result, you start saving on interest and repayments almost immediately. It only takes days to switch from the time you return your completed mortgage documents and loan agreement to us. 

Want to learn more about home loan refinance? 

Get in touch with us by calling 13 10 90. Our friendly lending specialists will be more than happy to discuss your refinance options. You can also check out our range of refinance home loans and schedule a call with us! 

If you’re ready to start your refinancing journey with us, you can apply online today! 

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