Should you Refinance your Home Loan
Thinking about refinancing your home loan but not sure whether it is worth the effort? If your circumstances have changed since you first took the loan out, it can be worth reviewing where you stand.
However, it is important to get financial advice first and be aware of the potential downsides.
1. Refinance to a lower interest rate
You can read independent guidance on refinancing at MoneySmart. Refinancing may allow you to move to a lower interest rate, depending on your loan and your lender. Also, lenders often compete to gain new clients and may offer various incentives, so it can be worth comparing what’s available when you refinance.
Although it can be more convenient to try to achieve a more competitive rate with your current lender first, you might find they won’t give you as good a rate as if you were to refinance with a different lender. This is because many lenders are offering lower rates and incentives to new business.
Make sure to do your due diligence as introductory rates and fees can hide the ‘actual rate’ as they may not be included in the ‘advertised rate’.
2. Get more flexible loan features
If your current bank can’t offer you what you want from your home loan, you should consider the option of refinancing with a lender who can. These loan features may help you save money by offering additional features such as redraw facilities, offset accounts or fixed rate options.
There are fixed rate options available, so it can be worth reviewing what your lender and others are offering. Whether fixing your rate is right for you depends on your circumstances and your view of the future, so it’s worth discussing your options with a broker before deciding.
Be aware of the negatives to fixing rates as they may incur high break fees and reduced repayment options.
3. Reduce your loan term
If your income is stable and you have additional savings, this could be a good opportunity to pay down your loan quicker by making extra repayments at a lower rate. This can save you money in the long run because you will reduce your loan term and pay less interest overall.
You may want to consider refinancing with a different lender so you can take advantage of such an opportunity, as your current lender may not allow you to make additional repayments.
4. Refinance Your Home Loan to Borrow Against Your Equity
Now might be a great time to start planning that renovation you have always wanted. Whether it is a bathroom renovation, a new kitchen or a full extension, you may be able to draw on the equity you have if you don’t have any savings.
Equity is the difference between the balance of your mortgage and value of your property. You may be eligible to access up to 80% of your home equity by refinancing and you can use this money to renovate.
You may also want to look at consolidating any other outstanding debts at the same time.
5. Can you refinance without visiting a branch?
Yes. Mortgage brokers can handle the whole process remotely, and at SB Finance we are open for business as usual.
Many lenders have relaxed their policies around requiring face to face meetings and at SB Finance we can arrange a refinance via video conference (Zoom / Skype), online or over the phone. Reach out to the team today to see how we can help you.
6. Be aware of the costs when you refinance your home loan
There can be some costs involved in refinancing, check the terms and conditions. Check with your lender regarding any exit costs or fees that may be involved with leaving your lender to move to a new one.
If you increase the size of your loan, you may need to pay government charges or other fees including stamp duty. In addition, your interest repayments will be higher, and you will pay more in interest over the life of the loan.
You may also need to pay LMI (Lenders Mortgage Insurance) if you borrow more than 80% of the property’s value or if you can’t transfer your old LMI to your new lender. There can also be fees for your loan application, property valuation and settlement, although some lenders will cover these costs.
Of course, these negatives need to be weighed up against your personal financial situation and you should seek independent legal and financial advice. As a starting point, reach out to the team at SB finance step to crunch some numbers and discuss your option based on your individual situation, that way you can make an informed decision about whether or not refinancing your home loan is the right move for you.
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