Even if you secured a competitive package when you first took out your home loan, it’s worth reviewing each year to ensure the interest rates, fees and features continue to meet your needs. By replacing your existing loan with a new one, you could take advantage of a better deal.
With interest rates also at an all-time low in Australia, now may be an opportune time to refinance your home loan.
Refinancing is where you replace your existing home loan with a new loan that’s ideally more cost-effective and flexible. It may involve changing your home loan product with your current provider. However often it will mean switching to a different lender who can offer you a better deal.
Some of the reasons you may look to refinance your home loan include:
If you can find a lower interest rate, you could save money and reduce your repayments. Even a 0.5% reduction on your interest rate could save you tens of thousands of dollars over the life of your loan.
When interest rates are down, you may be able to reduce the term of your loan. For example, you could reduce your loan term from 30 to 25 years —without too much change to your repayments. This could allows you to pay off your home loan sooner.
If you refinance your home loan, you may gain access to better features. These could include unlimited additional repayments, redraw facilities, an offset account or the ability to tap into your home equity.
Refinance your home loan to a fixed, variable or split-rate interest loan may provide you with lower rates, more flexibility or greater security.
Equity can be used to secure finance for big ticket items such as an investment property, renovations or your children’s education. This can be risky though because if you don’t make the repayments, you could lose your home as a result.
If you have multiple debts, it could make sense to roll these into your home loan if you’re diligent with your repayments. This is because interest rates associated with home loans are generally lower than other forms of borrowing.
If you’re looking to refinance, do you know what it is you’re after—a lower interest rate, added features, greater flexibility, better customer service or all of the above? It’s important to determine these things so when you’re researching other loans, you know exactly what you’re after.
You might be able to save money over the long term by refinancing, but the upfront costs can still be expensive. For this reason, it’s a good idea to investigate where costs may apply, or be negotiable—think discharge fees, registration of mortgage fees and break costs if you have a fixed-rate loan.iii
Also think about application costs if you swap lenders—establishment fees, legal fees, valuation fees, stamp duty, and lender’s mortgage insurance if you borrow more than 80% of the property’s value.
Before you jump ship, it may be worth a chat with your current lender as they might be willing to renegotiate your package to retain you as a customer.
An application process if you want to refinance will apply. This means your lender will take into account things like your employment situation, additional debts you’ve taken on, or if you’ve got a growing family as all these things can impact your borrowing potential.
Refinancing can be a wise move if it can save you money, get your debt under control or give you more flexibility in achieving your goals. It’s important to evaluate the pros and cons if you are considering refinancing. These can be complex so you may wish to speak to Milestone Lending about your options.
Source: AMP Advice.
