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5 questions to ask before refinancing

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If you think that your home loan interest rate isn’t competitive enough or your financial situation has recently changed, you may be considering refinancing. Before you refinance, it’s important to understand the process and any implications that may arise. Lendi has compiled a few key questions to consider before you refinance:

1. Can I ask my lender to lower my rate?

You can definitely ask your lender for a lower rate. It’s a great idea to be regularly checking out what interest rates your lender is offering to new customers. If the new rates are better than your current rate, don’t be afraid to contact your lender and ask. Lenders often reward loyalty, so they are likely to offer you the improved rate if you’ve been with them for a couple of years and have a consistent repayment history.

2. Should I switch lenders?

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If you are unhappy with how your lender operates, or you think you could get a better deal elsewhere, don’t be afraid to make the switch. It’s a good idea to compare your interest rate with a range of lenders, and not just your existing lender. You may be surprised at what deals are out there.

For example, online lenders tend to offer very competitive rates and unique loan features. Plus, with an online lender, you won’t be required to make any trips to the bank. Or, maybe you’d prefer a more traditional bank lender. Either way, with 35+ lenders, Lendi has you covered.

Want to see how your home loan rate compares to the rest of the market? Search home loans here.

3. How do I know if I’m switching to the right loan?

In general, when you switch to a new loan, you should be saving money or moving to a new loan that better accommodates your changing needs.

Prior to making the switch, it’s important to consider the reasons you are refinancing. If you are seeking out a better interest rate, make sure that the savings that you’ll make outweigh any potential refinancing costs.

If you refinance with your current lender, it may be a simpler process and you will generally avoid paying fees. Whereas if you refinance and switch lenders in the process, you might be hit with exit fees and break costs, depending on your loan type. Unlike fixed-interest rate loans, variable interest rate home loans won’t attract break costs, but both might still attract exit fees. Exit fees are only applicable to home loans entered into before 1 July 2011.

Your new loan should have minimum monthly repayments that you can comfortably afford. Refinancing can allow you to change your loan repayment term, but if decreasing your loan term makes it difficult for you to afford your repayments and general lifestyle, you might need to rethink things.

4. How much equity should I have in my home before refinancing?

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Once you have at least 20% equity in your home, you will be in a good position to refinance. You may still be able to refinance with less equity, but you may be subject to Lenders Mortgage Insurance (LMI) fees. If you have no equity, or less than 5%, you might be able to refinance with a guarantor.

You can build equity in a number of ways:

  • Make more regular repayments (e.g. weekly/fortnightly instead of monthly)
  • Make extra repayments
  • Use a redraw facility or an offset account to reduce your interest payable, but still have access to your extra repayments and savings
  • Pay larger monthly repayments
  • Renovate to increase your property’s value

Related: Equity home loans

5. Do I want to add any loan features?

The inclusion of certain features in a new loan when you refinance can improve your home loan experience. There are a range of loan features available, but some of ones you might like to look into include:

  • Offset account: a type of savings account attached to your loan that can help reduce the interest charged on your home loan.
  • Redraw facility: you have access to funds from any extra repayments that you make on your loan, while reducing interest charges.
  • Loan portability: you can easily transfer your loan to another property when you buy and sell your home.
  • Split loan: allows you to have part of your home loan charged with a variable interest rate and the other half charged with a fixed interest rate.

Some of these features are generally only available for loans with a variable interest rate. Fixed interest rate home loans are less flexible in that there is usually a limit to extra repayments made, and that refinancing before your fixed period ends could lead to break costs.

How much can you save by refinancing?

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Got a home loan question? Just ask!

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: interest rate, refinance, home loan, equity, home equity, offset account, redraw facility, split loan, portable loan

Check today's low rates

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Check today's low rates

Tell us what you are looking for and see if you can save.

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Important legal stuff

Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.
# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 35% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors.
*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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