How often should you refinance your home loan?

Refinancing has a range of financial and personal benefits, but how often can you take advantage of these and when is the right time to refinance a mortgage? We’re here to help you find out.

Why should you refinance?

Whatever your situation, refinancing your home loan can have a range of benefits which include:

• Lower interest rate - lowering your interest rate will reduce your minimum monthly repayments, putting more cash in your back pocket. Additionally, it will reduce the amount of interest you pay over the life of your loan, potentially saving you thousands of dollars.

• Reduce your loan term - refinancing allows you to increase or decrease your loan term, from 25 to 30 years for example or vice versa. Increasing your loan term would decrease your monthly repayments. Decreasing your loan term means you would pay off your loan quicker and reduce the amount of interest paid on the loan.

• Debt consolidation - refinancing can help you consolidate multiple debts onto your cheapest interest rate, which is generally your mortgage.

• Access new features - refinancing means you could take advantage of offset or redraw facilities, or make additional repayments on your loan, things your previous loan may not have allowed.

• Access equity - Equity is the amount you have paid off on your loan and when refinancing you can access this money. You could use it to leverage a lower interest rate, use it for a deposit on another home, or use it on a holiday or renovations.

How often can you refinance?

There are no rules on how often you can refinance your home loan. However, you will need to meet the credit requirements of the lender. These will include the usual credit history, income, and assets criteria you had to pass to get a loan in the first place. 

Whether you’ve had the loan for six months or 20 years, refinancing can be a viable solution to save money and can be considered whenever your circumstances change or you feel your rate isn’t competitive. However, it’s important to understand the costs associated with refinancing and ensure these don’t outweigh the savings you’ll receive from refinancing.

When should you consider refinancing?

There are a number of instances when you could consider refinancing. Your circumstances can be expected to change considerably as you switch jobs, have kids, and experience financial windfalls and setbacks. All of these events can be triggers to review your major financial commitments, including your home loan.

Coming to the end of a fixed-term loan is also a great time to consider refinancing. Fixed-term loans often have a lower rate for the fixed period and revert to a higher than standard variable rate, increasing your monthly repayments.

You could also consider refinancing based on cash rate cuts and the market. The Reserve Bank has cut the cash rate by 125 basis points in the last year to a historically low 0.25% and the home loan market has never been more competitive. If you feel your current interest rate isn’t competitive, it may be a great time to refinance.

It's a good idea to review your mortgage to see if it is still suitable for your circumstances and still represents good value. 

Keep in mind, 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.

What to consider before refinancing

Prior to refinancing you need to think carefully about whether it makes financial sense to replace your old home loan or not. Here are some things to consider before you decide to refinance your home loan:  

• Costs – There are certain costs to refinancing, like loan application fees for new loans, mortgage discharge fees, or break costs if your home loan has a fixed rate. Some lenders also offer a "no-cost" refinance, which usually means that you will pay a slightly higher interest rate to cover the closing costs.

• Lenders Mortgage Insurance (LMI) – If you have less than 20% equity in your home, you may have to pay Lenders Mortgage Insurance. This is because you cannot transfer the existing LMI to the new loan, despite the fact that your previous lender is no longer at risk.

It’s imperative that you do your research and compare your current home loan to the new loan you’re considering in order to ensure that you really will be better off.

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.

To start your refinancing journey with us, book an appointment or call one of our friendly loan specialists on 13 10 90.

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