Is it really worth it to refinance your home loan?
Many people dislike changing their finances but the fact is refinancing requires little effort and can save you a lot of money. We’re here to help explain what refinancing is, the potential benefits and the best time to act.
Refinancing your home loan is the process of moving your home loan to a different lender or product. Refinancing can take quite a bit of paperwork, as you could be speaking with two lenders at once. There are several reasons for doing this, the main of which is to save money or get better features on your loan.
In this article, we explore the benefits of home loan refinance and the possible scenarios in which it could be most beneficial.
What are the benefits of refinancing?
Refinancing a home loan isn’t as easy as signing a few documents and calling it a day. If switching lenders, borrowers have to coordinate with their current lender to ensure a smooth transition into their refinanced home loan under the new lender.
So, if it’s so complicated, why are people still choosing to refinance? It’s because refinancing does offer specific advantages. Reasons to refinance a home loan include:
- Possibility to secure a lower interest rate - A lower interest rate means your monthly repayments will decrease, as will the amount of interest you pay over the life of the loan. By the end of the loan, this could save you a significant amount of money.
- Changing your loan term - You could decrease or lengthen the length of your loan, from 30 years to 25, for example, or vice versa. Increasing your loan term means you could decrease your monthly repayments, but could increase the interest paid overall. Meanwhile, decreasing your loan term typically means you pay your loan off quicker and reduce the amount of interest you pay, but with higher repayments.
- Access new features - You may be able to take advantage of features like an offset sub-account or redraw facility, or make additional repayments on your loan without penalty. All of these features can help you pay off your loan quicker.
- Access equity - You can access the equity in your home, the amount you’ve paid off on your current loan, and use it to purchase another property or make renovations to your existing property.
Is there a good or bad time to refinance?
A good or bad time to refinance is entirely dependent on your specific situation. Your personal finances may have changed, for example, and it would be beneficial long-term to decrease the term of your loan. Market conditions may also change significantly, and lower rates could become available with other lenders. Or perhaps you want to access the equity in your home and spend this money on re-investing, renovations, a car, or a holiday.
Refinancing can also be an option for consolidating debts, which may help simplify repayments.
Timing also plays a big role in whether a home loan refinance is ideal for you. It may be too late or too early to refinance. It all depends, though, on how long you’ve been paying off your home loan and how much of the principal amount is left. It’s best to speak with a finance professional and a lending specialist to fully understand your options and make an informed decision.
What else should you consider before refinancing?
Several fees come with refinancing; your current lender will charge you a discharge fee, while your new lender will charge you application fees, as well as any legal fees you may incur.
Additionally, if you don't have a large enough equity in your home, you may have to pay Lenders Mortgage Insurance (LMI), which can be quite costly. It’s important to know how much your refinancing will cost you upfront, so it doesn’t make the savings you’ll get from refinancing obsolete.
When looking for a new loan, you may want to consider the following:
- Interest rate - Even a small reduction in the interest rate can save you thousands over the term of the loan.
- Comparison rate - This is the true cost of the home loan. You might be on a low rate, but are you paying other fees?
- Ongoing loan fees - Make sure that you factor in all ongoing costs, so that you can determine the true savings the loan will afford to you.
- Discharge fees - It's important to check that any fees associated with exiting your loan are disclosed to you so that you know how costly exiting your loan will be.
- Features and facilities - With the range of choice in the market, it's important to check that you are offered all the works at no cost or low fees.
- Customer support and service - Choose a lender that knows how to support its borrowers. Your home loan experience can be greatly affected by the quality of customer service your lender provides.
- Possible options from your current lender - Your current lender may be able to help with a rate reduction, a change in loan features or repayment type or frequency, or even releasing equity. This could save you from needing to refinance with another lender, depending on your goals.
To start your refinancing journey with loans.com.au, book an appointment or call one of our friendly loan specialists on 13 10 90.
Disclaimer: The information provided in this article is general in nature and does not constitute financial or legal advice. Please seek independent professional advice tailored to your personal circumstances before making any financial decisions.
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About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
