Refinancing your home loan
Refinancing simply means replacing one loan with another. It might be a different loan from your existing lender, or a loan from a new lender. In practice, it means getting a new loan and using the money to pay off your old loan.
Why should I refinance?
The typical reason people refinance is to get a better deal. That usually means finding a new loan with a lower interest rate.
At a time when interest rates are slowly falling, there can be a wide gap between the lowest and highest interest rates offered by banks and other lenders for both fixed and variable-rate loans. A difference of even 1 per cent can mean big savings. As an example, 1% on a $500,000 loan means about $300 difference in your monthly repayments. You don’t need to be a mathematician to realise that over a 10-, 15- or 20-year period, this adds up to some serious savings.
Other reasons to refinance
While lower interest rates are the biggest incentive to refinance, a lot of people are searching for other changes to their loan details. Another popular reason to refinance is to move from a variable to a fixed-interest loan (or vice versa). Redraw (where you can access any additional repayments you might make) and offset (where your savings contribute towards your loan amount, ensuring you pay a bit less interest each month) are two further features of a loan that some people may find appealing.
Certain loans, especially those with set interest rates, do not permit you to make additional repayments. The ability to occasionally contribute a little more on your debt can reduce it by months or even years. Conversely, you might be able to take advantage of a new fixed loan’s interest-only period, which would save you money over the first few years.
Additionally, some loans allow you to pay every two weeks instead of every month. By making more frequent payments, you can reduce the amount of interest you pay on your loan. Every bit counts.
Refinance to consolidate your debts
Some people refinance as a way to pay off or consolidate other debts, such as personal loans or credit cards. Home loans have lower interest rates than other loans. Refinancing can be a way to pay off other debts and put everything onto your new loan. Banks and other lenders all have their own rules about debt consolidation, so chat to a Mortgage Broker Group broker to understand more about this.
Unlock equity
‘Equity’ is the difference between the current value of your property and your loan amount. If you’ve owned your place for more than a few years, you probably have equity. Say your loan was originally $600,000, and you’ve managed to pay it down to $500,000. Over that time, the value of your property might have increased to, say, $700,000. In this scenario, you have $200,000 in equity.
Refinancing your loan can allow you to borrow on the new value, unlocking the equity amount. You can then use this extra cash for a renovation or even to purchase an investment property.
Again, there are some hidden traps that you should be aware of, so talk to us or a registered financial advisor before plunging into the equity pool.
Costs of refinancing
The difficulty of switching banks, changing automated payments, and all the other complications associated with a home loan is the largest barrier to refinancing. We can help with the process, but it’s still a pain. Still, if you’re saving thousands of dollars a year, the pain is probably worth it.
There may also be financial costs. There could be an exit fee associated with older loans taken out prior to June 30, 2011. Termination fees also often apply to fixed-rate loans. In addition, there are fees for the new loan’s establishment and continuous annual fees to consider. To avoid losing some of the advantages of transferring, we can help you make sure refinancing is really worth your while.
Talk to a home loan expert
When interest rates are fluctuating, it’s a great time to compare different, lenders, interest rates and conditions.
At Mortgage Broker Group, our brokers are experts in understanding different lenders and loan products. We’ll take your individual situation into account and match you with loans that suit your purposes. Once we find you a suitable loan, we’ll help with the refinancing process, including helping you with the paperwork!
Whether it’s saving on interest or unlocking equity, we’re here to help you understand the pros and cons of refinancing your loan.
Our service is 100% free for you, always. And there’s no obligation to use us to help broker your new loan. Of course, banks and lenders will still charge you their standard fees if you do take out a loan.