Refinancing can seem like a big task, so is it actually worth it?
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. There are a number of reasons for doing this, the main of which is to save money on your loan.
Refinancing is completely dependent on your personal situation. A change in your personal circumstance may mean you need to lower your repayments, decrease the life of your loan, or have access to a redraw or offset facility. You may also just be unhappy with your current lender and take your business elsewhere. 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 help you consolidate debt if you’re struggling financially. Consolidating all your debts into your mortgage into one payment can be an effective budgeting strategy, and if structured correctly, can minimise your repayments.
The interest rate market is highly competitive right now. We’re currently offering an introductory variable rate of 1.99% p.a. for one year, the first-ever variable rate loan in Australia starting with a 1. If you feel your current interest rate isn’t competitive, it may be a great time to refinance.
One of the most important things to understand about refinancing is it’s never too late and it’s never too early. It’s usually possible to refinance whether you’ve had your home loan for 3 months or 20 years.
Find out more about when you should switch home loans.
Refinancing comes with many benefits which include:
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 tens of thousands of dollars.
Reducing your loan term - When refinancing, 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 while decreasing your loan term means you pay your loan off quicker and reduce the amount of interest you pay.
Access new features - Refinancing means you may be able to take advantage of features like an offset or redraw account, or make additional repayments on your loan without penalty. All of these features can help you pay off your loan quicker.
Access equity - When you refinance you can access the equity in your home, which is the amount you’ve paid off on your current loan. You can use this equity to get a lower interest rate, as you may have a much lower Loan to Value Ratio than you did when you took out the loan. Alternatively, you could use it for non-essential spending, like renovations or a holiday.
Although refinancing has many benefits, there are a couple of things you should consider when refinancing. There are a number of fees that 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 haven’t got a large enough equity in your home, you may have to pay Lenders Mortgage Insurance (LMI), which can cost thousands. 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.
With the loans.com.au FastTrax Refi system, we pay off your old loan before sending any paperwork to discharge the loan. As a result you start saving on interest and repayments almost immediately. From the time you return your completed mortgage documents and Loan Agreement to us, it only takes days to switch.
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 lender 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 - make sure you choose a lender that is willing to fight for your business. You want to be more than a number, and there are lenders out there that offer such support and service - don't settle for second best!
The money you pay upfront by switching could be gained back quicker than you think if you move to a home loan with a lower interest rate and fees
To start your refinancing journey with us, book an appointment or call one of our friendly loan specialists on 13 10 90.