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Last Updated on 21 September 2018

Your Guide to Refinancing


If you’ve had the same home loan for a long time, it can be frustrating to watch interest rates drop below what you’re paying. Sometimes it seems like everyone’s getting a great deal on a home loan, while you’re stuck with the one you locked in years ago.

Looking to take advantage of a lower interest rate or add more features to your mortgage package? It could be time for you to refinance. This guide will help you decide whether a refinance is right for you and point you in the direction of home loan savings.

 

Key Points
  • Refinancing is replacing your current home loan with a new loan, usually with a lower interest rate or different features.
  • People refinance to lower their repayments, access equity in their home, consolidate their debts, or to get more comprehensive home loan features.
  • Refinancing can save you money, but it’s important to take fees and costs into account before moving forward with a refinance.

What is Refinancing?

First, it helps to understand what it means to refinance. Basically, refinancing is replacing your current home loan with a new home loan, usually at a lower interest rate. Your new home loan will pay out the old one, and you’ll make repayments on the new loan until it is paid off. You can refinance with your current lender or take the opportunity to switch to a different lender.

There are several variables involved with refinancing, and you should weigh up the pros and cons before making a decision. Although refinancing isn’t for everyone, it can be a smart way to save cash and get more value out of your home loan.

Why Refinance?

There are several different reasons why people refinance, from saving money to diversifying a property portfolio. Refinancing can be an opportunity to improve your financial standing. Here’s why people do it.

Reduce your mortgage repayments

If you’re struggling to make your mortgage repayments, you may want to switch to a loan with a different payment structure. You could move from principal and interest to interest-only repayments, which are typically lower. However, keep in mind that this could affect your overall loan cost.

Pay less interest

Interest rates are a hot topic in refinancing, because finding a lower rate means paying less interest. The less interest you pay, the more you can save over the life of your loan.

Access equity

To work out your home equity, subtract your remaining loan balance from the total value of your home. As your property appreciates in value or you pay down the loan, your home equity goes up. You can borrow against this equity to get a chunk of cash, which can then be used as you wish: renovations, holidays, or to purchase new property.

Keep in mind that you are still borrowing this money, so you’ll have to pay it back.

Consolidate debt

If you have multiple loans, it can be tempting to roll them all together into one tidy package. It is possible to achieve this through refinancing, though only worthwhile if it is going to save you money.

Get a more comprehensive loan package

Not happy with your loan features? Wish you had an offset account or redraw facility? Want to split your loan between a fixed and variable rate? Refinancing can help you lock down a loan with the features you want.

Why Don’t More People Refinance?

Homeowners often hesitate to refinance because of the misconception that it’s complicated, but it doesn’t have to be. Others don’t like the idea of going over their finances with a third party, for fear of being judged. Others still feel a sense of loyalty to their lender, though it’s tough to say whether the lender would share those feelings in return.

While it’s true that refinancing was once a lengthy process, it is now easier than ever. You have the power to compare home loans on your own, rather than relying on what the bank is offering. You can also access home loan advisors online or over the phone, saving you time and money.

Refinancing is often about getting over the mental hurdle that it’s going to be too hard or not worth it, when it can actually save you a significant amount of money.

Take Stock of Your Current Loan

Refinancing isn’t something to dive into lightly; you’ll need to do some calculations first. Tally up what you owe on your home loan, including interest. Then add in any fees you may have to pay for closing out your current loan early, like discharge fees. Finally, consider the costs associated with establishing a new loan, such as stamp duty, legal, or registration fees.

It may sound like a lot of fees, but refinancing could still save you thousands. A mortgage broker can help you identify any costs associated with refinancing, which will help you decide whether it’s worthwhile to make the switch.

Refinancing: Getting Started

Switching home loans after having the same one for years can be scary. However, letting fear hold you back could cost you a lot of money! Refinancing can be a positive experience, especially if you do your homework. If you’re not sure, ask an expert—mortgage brokers can offer tailored advice at no cost or obligation to you.


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