Refinancing could be your solution to saving some money off of your monthly mortgage repayments. Data from the Australian Bureau of Statistics (ABS) shows that more than 498,000 Aussies refinanced their home loans as of October 2021, with a massive $16.08 billion worth of home loans refinanced from one lender to another. Before you consider refinancing, it is important to check that the benefits of refinancing outweigh the costs. Accessing the equity in your home frees up cash that could be used to renovate, re-invest, buy a new car, consolidate debt or pay for unexpected expenses. To help you make an informed decision about refinancing your home loan, there are some important factors to consider.
Before refinancing your existing home loan, ensure that you have a clear understanding of how your current home loan is set up and what features are included. Ask your mortgage broker or lender for details about current pricing and other important information about your home loan. This information might include your current interest rate, the total cost of your home loan, monthly and annual repayments, and an explanation of how repayments could be impacted by a change in interest rates. A mortgage broker will use this information to compare home loan products and features across various lenders. They will also explain how your home loan ‘stacks up’ against what’s available in the market.
When comparing home loans and considering refinancing, remember that interest rates are just one of the many variables to think about. Although switching to a lower interest rate reduces your monthly repayments and could help you pay off your home loan faster, you should also consider fees charged by the existing lender and the new lender, the loan term and the loan features (including redraw facilities, offset accounts, or lines of credit). Refinancing a loan from your existing lender to a new lender may mean that you could be faced with extra fees. Increasing your loan term may reduce your repayments while decreasing your loan term means you’ll pay less interest over the life of your loan.
As well as an establishment or application fee charged for setting up a new loan, and the ongoing fees charged each month for administering the loan, your existing lender may charge early termination fees if you end your loan term early. When refinancing, be aware that if your resulting equity is less than 20% of the property value, you may be required to pay Lenders Mortgage Insurance (LMI).
So before you go ahead and refinance, have your mortgage broker weigh up the costs against any potential savings in interest rates to ensure refinancing is the right option for you. Consider all the fees charged by lenders, like exit fees, valuation fees, application fees, and break fees. Make sure you get advice from your mortgage broker before refinancing your home loan or switching lenders, as your mortgage broker can help you determine if refinancing is right for you, help streamline your application, and ensure you understand what’s required of you at each step of the refinancing process.
Bernie Lewis Home Loans Pty Ltd ACN 008 284 544 Australian Credit Licence Number 388 533. The information provided is general advice only. It has been prepared without taking into account any of your individual objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. 213 Fullarton Road Eastwood SA 5063.