The days of sticking with your bank through thick and thin are well and truly over. Lenders increasingly benefit from ‘rusty’ older clients who simply forget to review the terms and interest rates of their home loan. In the current competitive climate it can often pay to refinance your home loan, ensuring you are always getting the best deal…
Refinancing means replacing your existing home loan with a new one. You can do this by moving your home loan to a new lender or updating the terms with your existing lender. Borrowers typically refinance to get a lower interest rate or more flexible terms.
There are a number of reasons why a borrower might want to refinance. Some financially savvy borrowers refinance to a better loan every few years, while others choose to refinance because their personal circumstances have changed and they are struggling to meet their repayments.
Your current loan is outdated and there are better options out there.
You want to use your equity to renovate or buy another property.
You’re struggling to make repayments or need extra cashflow.
Lifestyle changes such as a growing family.
You’re looking for more flexible repayment options, such as making larger or extra repayments, so you can pay off your loan faster.
You're paying high interest for loans such as credit cards, personal loans or car loans. Consolidating these loans into your home loan can reduce the total amount of interest you'll pay.
There are a number of benefits to refinancing with the most prominent being:
Reducing your monthly repayments: A lower interest rate can reduce your monthly payments and free up some extra cashflow.
Cut years off your loan: More flexible terms can allow you to make extra monthly repayments. This, combined with a lower interest rate, means you can pay off your loan faster by maintaining your current monthly repayments. It also means you'll save money that would otherwise have been spent on interest.
Get cash out: You can access equity from your home loan to finance renovations and other costs that you might have.
Consolidating debt: You can reduce the overall interest you pay by combining other loans (credit cards, car loans or personal loans) into your home loan and paying those off at a lower interest rate. You can save money that would have been spent on interest since home loan interest rates are generally much lower (usually between 3-6%) than other interest rates such as credit cards, which can be as high as 19%.
Improving the terms of your loan: If you want to set up an offset account, redraw facility, split your loan or anything in-between, then refinancing to a loan that fits your finances and lifestyle could help you plan for the future.
Since interest rates change regularly, it’s smart to regularly research and compare your home loan with others on the market to make sure that you have the best deal available.
Compare loans: Begin by comparing your current home loan with other loans on the market. While individual lenders will show you their products, platforms such as Lendi lets you compare hundreds of loans from over 30 major Australian lenders. Compare online in seconds, or chat to a Home Loan Specialist.
Tell us about you: Answer a few questions about your needs and preferences and we'll show you the best loans available for your situation. A Home Loan Specialist will be on-hand to answer any questions.
Choose a deal: Once you’ve chosen a loan, you can apply to refinance your home loan completely online. From here, your Home Loan Specialist will deal with the lender for you and guide your loan through to settlement.
Relax: Once your home loan settles, you can relax and enjoy the benefits of your new terms.
When refinancing your home loan, there are few things to look out for and research. They can include:
The cost of refinancing: if you decide to refinance your home loan, there can be some costs and fees involved. Your Lendi Home Loan Specialist will be able to calculate if the added cost to refinance will be worth it long term.
Cost of breaking from a fixed rate: if you are currently on a fixed interest rate, you may also find yourself having to pay additional break fees. However, this will depend on how far you are into your home loan, along with the size of the loan.
Depending on your current loan and lender you may need to pay a fee to refinance. But, if you look around, you can find one that costs you less in the long run. Some of these fees could include:
Borrowing costs: When you refinance, your new lender may charge you a series of fees upfront.
Break costs: This can occur when you have a fixed loan with your current lender and wish to refinance with another lender before your fixed term is up. Your current lender will calculate this fee based on the remaining time on your fixed interest rate.
Again, your Lendi Home Loan Specialist can calculate if these added costs will be worth it long term.
The days of people sticking with a home loan for the full 25 or 30-year term are long gone. A typical Australian homeowner will refinance their home loan almost every four or five years. People are always looking for a better deal, and rightly so!
There may be some costs associated with refinancing so it’s good to chat with a Home Loan Specialist to find out exactly how much you can save.
Refinancing when your needs change: If your family is growing, you may need to assess whether or not your current home loan is still right for you. Does it have the flexibility you need? Look into products such as an offset account to reduce interest. If you might need a renovation in the future, refinancing can be a good option because you will need access to more equity.
Refinancing when interest rates fluctuate: If you begin to see rates that are even 0.5% less than the interest rate you currently have, it may be the time to seek out the guidance of a Home Loan Specialist. They can calculate exactly how much you could save and which loans you are eligible for.
Yes, you can, but the costs you may incur will depend on your lender and how soon you refinance. While a typical loan term lasts about 25 years, many borrowers will move before a home loan expires. Don’t take it for granted that you’ll stay in the same house forever, as circumstances can change.
Ask your Home Loan Specialist if moving home will have a negative impact on the terms of your home loan. Enquire about any potential penalties attached to moving home and make sure you are prepared for them, should they exist.
The cost of refinancing a home is often made worthwhile after a period of roughly five years. If you plan on moving before then, your Home Loan Specialist can help calculate whether the closing costs are low enough to make this option financially viable.
Ideally, you'll have equity of 20% or greater of your property's value (or less than 80% LVR) before refinancing. If your LVR is above 80% there are still refinancing options available to you but you may need to pay Lenders Mortgage Insurance and this will directly impact how much you gain to save by refinancing.
Before you think about refinancing, calculate your equity in your home first. You can come to this figure by taking the value of your home (if you don’t know the value of your property, get a free property report here) and then subtracting your outstanding home loan amount.
The higher this number, the more equity you have, which can translate to larger savings from refinancing. High equity, or low LVR, usually means you’re more likely to be eligible for more favourable interest rates and lower overall fees.
Similarly, you can calculate your LVR using the below formula:
(Outstanding loan amount / Value of property) x 100 = LVR