Home Loan Refinance: Everything You Need To Know

Home Loan Refinance: Everything You Need To Know

Don’t know if you should refinance your home loan, or stick to your old one? Considering if you should push through with your decision of refinancing can be a difficult choice to make, because a lower interest rate doesn’t always mean you can save more with your mortgage repayments.

There are plenty of factors to consider and things you need to know before you switch to a new home loan or to a new lender. Because if you follow the wrong approach, you could actually pay more instead of saving on your home loan.

Why should you refinance?

There are number of reasons why you might want to refinance. You may want to refinance for a better interest rate. Your current lender may not offer a competitive rate compared to other mortgage lenders. There might have been a huge financial change in your life such as a loss of job, you may need to pay for your child’s education, and many other reasons.

Another reason to refinance is to consolidate your debts. If you have accumulated many debts such as credit card and other personal loans, refinancing can help you manage them all with one lower monthly repayment.

Refinancing could also be a way to use the equity in your home to invest in home improvements, or in other real estate, shares and managed funds. However, keep in mind that increasing your loan will mean an increase in your loan repayments.

Why should you not refinance?

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. You will likely spend money switching and you won't realise much in the way of savings from refinancing. If you do not have a stable source of income or have recently switched jobs that may also affect the decision, because you might not be eligible to refinance at a better rate than the one you currently enjoy.

If your credit score has decreased even just a little, you may miss out on qualifying for the lowest rates. Also, the closing costs may be high on your current home loan.

How to know if you’re eligible for a refinance?

Many lenders will require you to have 20% equity in your house to refinance. However, it may still be possible to get your home loan refinance with less than 20% equity. Every lender has different criteria so it’s still best to ask if you’re eligible to refinance.  

How to know if it’s time to refinance?

The life of a home loan is typically 30 years. Many things can happen in a span of three decades. Assessing your home loan every few years can provide an idea of whether your current home loan still has a competitive rate. You should also take into account your personal circumstances, for instance if you are planning on upgrading your home, or starting a family.

How much does it cost to refinance?

While refinancing may save you money in the long run, there are a number of upfront costs involved. So it makes sense to factor these into your budget before you get a new mortgage. Here are some of the costs that you may incurr when you refinance your home loan:

  • Borrowing costs: Upfront fees may be charged to you by your new lender.
  • Application fee: Some lenders may charge this when you apply for a new home loan.
  • Lender’s Mortgage Insurance: You’ll be asked to pay for LMI if your new loan is more than 80% of the property's purchase price.
  • Exit fees: These are charged by your current lender when you decide to pay out a loan early.  
  • Settlement fee: This is needed to pay out your current mortgage.
  • Discharge fee: For you to be released from your former mortgage, a discharge fee will be charged.
  • Valuation fee: This will be charged when a valuation is conducted on your property.

Make sure that you factor in all of these all before you refinance your home loan. You can ask one of our lending specialists here at loans.com.au about our refinancing products. 

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