When should you switch home loans?

Your mortgage is a long-term commitment with loan terms typically spanning decades. In those years between your application and the end of your loan, a lot can happen. Your financial situation may change, you may have new investment goals, interest rates may drop, or new loan features may pop up.  

When changes like these happen, you may find that your current mortgage doesn’t work for you as well as it did when you first got it. A way to solve this is by switching to a new mortgage. But when does it make sense to refinance a home loan? 

Your interest isn’t competitive anymore 

Interest rates change over time. They could increase or decrease depending on several market factors. If you find that interest rates have dropped drastically, it may be a good time to switch to a home loan with better rates. 

Refinancing for a lower rate could save you money and may help you pay off your home loan sooner. A lower interest rate could also mean lower monthly repayments, which might allow you to put more cash back in your pocket. 

Generally, an interest rate reduction of more than 0.5% may result in a noticeable decrease in the overall interest paid on a loan. In some circumstances, the reduction might also help offset some or all of the costs associated with refinancing. Usually, the lower the interest rate, the more savings on your home loan. 

You could qualify for a better interest rate 

If your financial situation has improved significantly, for example, you have a higher credit score, improved income, or have an overall healthier financial history compared to when you initially got approved for a home loan, you could qualify for a better interest rate and features. 

You could negotiate your home loan rate with your current lender. They may be amenable to adjusting your rates or providing you with better features to save costs.

If your interest rate isn’t competitive or you think you could qualify for a better rate, you may want to speak to your current lender, as they may be able to help get your mortgage on a more competitive interest rate, which could save you the hassle of refinancing.

You want to fund a home renovation or property purchase 

Home renovations can be costly, which is why many people choose to refinance their home loan to tap into their equity. To access the equity, you could consider refinancing with a new or existing lender and increase the amount you owe to the lender to gain the renovation capital. 

Refinancing your home loan for a home renovation can be done in a few ways. You could increase your current home loan, also known as a ‘home loan top-up’. This is when you borrow against your home’s equity with the same lender. Or you could refinance to a new home loan with a different lender if they offer more competitive interest rates or perhaps better features. 

When refinancing to fund your home renovation, it’s important to have a solid understanding of your finances and current equity. You need to plan carefully to make sure you have enough buffer in your budget to accommodate unforeseen renovation expenses.   

Perhaps you want to buy an investment property and need to access the equity you’ve built up in your home to contribute towards the deposit. Refinancing your home loan allows you to tap into the equity you’ve built up and put it towards a deposit. 

You want to adjust your interest type 

If you are currently on a fixed rate home loan that is about to come to an end and the revert rate isn’t competitive, it may be time to think about refinancing to a different loan with a more competitive interest rate. 

There are also plenty of competitive rate fixed home loans on the market right now. If you want to lock in a low rate for a few years, it may be time to have a think about refinancing to a fixed rate mortgage. 

How to transfer your home loan 

When refinancing, it’s important to compare the cost of switching home loans. Costs associated with changing home loans include early exit fees, break fees, application fees, and the like. You can check what the average interest rate is and compare that to your own to see how your mortgage compares. 

Compare the fees that come with refinancing, such as break costs, application fees, switching fees, discharge fees and stamp duty costs, as you may be liable for these when you refinance. 

Once you have narrowed down a short list of potential loans you’d like to switch to, use our online mortgage switching calculator to estimate how much you could potentially save by refinancing. 

To learn more about your home loan refinance options, get in touch with our friendly lending specialists. At loans.com.au, we can help you find your ideal refinance solution so you can get a home loan that works for you. Check out our home loan refinance options to see which one suits your needs best.   

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