Getting a Home Loan in Australia if you're living overs...
29 Nov 2023
Refinancing your home loan can be a great way to get yourself a more competitive interest rate and save you money over the life of the loan. But how soon after you get a home loan can you refinance, what should you consider prior, and are there alternatives. Find out in this article.
You can technically refinance your home loan whenever you want, be that a day, a week, or a year after your home loan settles. However, there are a number of reasons why you might want to hold off doing so for a period of time including possible costs and fees as well as the potential impact on your credit score.
Many people refinance their home loans, typically because it’s going to save them money. But if you’re constantly refinancing, or doing it too soon after your mortgage settles, you may not actually be saving any money.
That’s because it costs money to refinance. Some of the common upfront costs of a home loan include application fees, conveyancing fees, property valuations fees, government fees, legal fees, and mortgage registration fees. If you’re refinancing to a new lender you may have to pay discharge fees, early exit fees, or fixed-rate break costs. All of the fees add up and when they do, you might not be saving money by refinancing, even if you do have a far more competitive interest rate.
It’s typically recommended you wait at least one year, or even two to refinance your home loan after it settles.
One of the most important things to consider before refinancing is how much equity you have in your home. Equity is the difference between the value of your property and how much you owe on the loan. If you’re refinancing immediately after your home loan settles, you more than likely won’t have much more equity in your home than the deposit you paid.
Find out more about equity in your home.
Lenders often require a 20% deposit, but some will let you borrow with just a 5% deposit. However, if you have less than a 20% deposit, you’ll be required to pay Lenders Mortgage Insurance (LMI). Borrowers who don’t have a 20% deposit are considered higher-risk by lenders and LMI protects lenders in the event the borrower can no longer make their repayments.
If you bought a home with a deposit of less than 20%, and as a result, had to pay LMI, and wanted to refinance immediately, it’s unlikely you would’ve paid off money to have 20% equity. As a result, you would have to pay LMI again. LMI can be thousands of dollars, so doing this is likely to render your money-saving efforts obsolete.
It’s important to review your current financial situation before refinancing soon after your home loan settles. A lender may have approved you a month ago when you first applied for the loan but has anything changed since then? Has your income decreased, do you have more expenses or a large expense you soon have to pay? Has something happened that means the lender is more risk-averse about their lending? It’s vital you consider all of these factors as they could mean you won’t be approved again.
Making an application to refinance your home loan is considered a formal credit enquiry and will influence your credit score. Applying for multiple loans, soon after your loan has settled, repeatedly, could have a negative effect on your credit rating.
If you’re considering refinancing soon after your home loan settles, consider why you’re doing it. Prior to refinancing, ask yourself these questions:
Consider these questions and they may help you decide whether the timing is right and if you need to refinance straight away.
If you want to refinance soon after your home loan settles, there are other options you may consider. If you want to lower your monthly repayments, you could look into extending your loan term or switching to an interest-only loan.
If you’re looking to make an expensive purchase, like a car, you may consider taking out a car loan. If you’re looking to do renovations, a construction loan may be a good option.
If you’re looking to refinance, chat to one of our friendly loan specialists on 13 10 90.
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