Why You Should Refinance Your Home Loan
In Australia, the average home owner changes home loan providers every four to five years, usually to chase a better deal. We have prepared this article to help you review your current home loan terms and explain what to look for in your new loan. Whether you have had your home loan for one or thirteen years, a Lendfin home refinance specialist can review your terms and see if there is a better deal on the market for you.
Benefits of refinancing
The benefits of refinancing a home loan include:
- A more competitive interest rate. Many lenders will offer reduced rates in order to entice customers to switch from their existing bank. Similarly, if your current loan has an introductory rate you may benefit from refinancing at the expiry of this rate.
- Decreased monthly commitments. Aside from a lower interest rate, refinancing allow you to extend the loan term thereby decreasing monthly payments. This option must be considered carefully with regards to your long-term financial goals.
- Opportunity to consolidate debts. When enough equity becomes available, it may make sense to consolidate other debts (eg. credit cards and personal loans) into your home loan to reduce the interest rate.
- Switch to a fixed rate. Depending on the market, fixed rates can be significantly lower than variable rates. A loan refinance is a good opportunity to take advantage of fixed rate pricing.
- Switch to a loan package with additional benefits. Most banks offer home loan packages with additional benefits such as interest rate discounts, low annual fees, low rate credit cards, insurance and offset accounts.
- Access equity. As long as your loan to value ration remains below 80%, refinancing can be used to access equity in your home and allow for additional expenses such as renovations, major purchases or your children’s education.
Cost of refinancing
Unfortunately, refinancing a home loan does have a price, but in many cases this can be recovered over time with better loan terms. Such costs may include:
- Application fee
- Valuation fee
- Settlement fee
- Discharge of mortgage and registration of mortgage fees
- Annual account fee
Many banks are happy to reduce or waive these fees for refinance deals, so it’s worth talking to a home loan expert to see what sort of deals they can negotiate for you.
Common refinance mistakes
Aside from ignoring the cost of refinancing, there are a few common errors that can affect your refinance application. Although you may be looking for the best deal, submitting multiple applications at multiple banks will have a negative effect on your credit rating and limit your refinance options. A good mortgage broker can consolidate loan information from different lenders on your behalf without the need to submit multiple applications.
Refinancing a home loan may give you the opportunity to reduce monthly payments, however this may be at the cost of extending your loan term and thereby actually paying more over time. Look closely at any refinance options to ensure that it suits your long term goals, or ask a broker to calculate your total payments comparing your current loan to refinance options.
A home loan is one of the biggest expenses for the average Australian family. Ensure your loan is working for you by regularly reviewing your current loan terms with a professional and taking advantage of the products available.