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How do you determine if it's worth refinancing?

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With interest rates so low at the moment, you might be considering refinancing your home loan. Chances are, if you bought your home more than a couple of years ago, you can make some big savings by refinancing to reduce your interest rate.

Even those who purchased more recently may be able to secure a marginally lower interest rate.

Refinancing can be greatly beneficial to many homeowners seeking out a home loan that suits their needs, but it’s not always the best option.

Is it worth refinancing for a 0.5% rate reduction?

A 0.5% interest rate reduction may seem insignificant and not worth the hassle of refinancing. However, if you plan on keeping your home loan for an extended period of time, even a small reduction like this can make a big difference.

Here’s an example:

If you took out a $400,000 home loan at an interest rate of 3.5% over a 25 year period, you would pay about $2,002 per month. Now, if you reduced that interest rate to 3%, you’d pay about $1,897. This would save you $1,260 per year, $6,300 over 5 years, or $31,500 over the course of the total 25 year loan repayment period.

That’s a significant saving if you’re thinking about the long-term benefit. However, the costs of refinancing could make the saving worthless so it’s a good idea to understand the costs involved before getting started.

Consider the cost

Refinancing often costs money, so it’s important to ensure that the benefits outweigh any potential costs.

Costs typically arise for those on home loans with a fixed interest rate. If you refinance your fixed rate loan before the fixed period is over, you could be charged break costs. Before refinancing, it’s best to speak to your lender to get an idea of how much you may be charged.

If the break costs are high and won’t be balanced or trumped by improved interest rate savings from refinancing, it might be better to wait until your fixed period concludes.

Some loan features cost money. For example, while beneficial for the right person, offset accounts may come with an annual fee. Similarly, you may be charged to take funds from your redraw facility.

Other costs can include:

  • Property valuation costs
  • Application and loan establishment fees
  • Lenders Mortgage Insurance (LMI)
  • Exit or discharge fees
  • Mortgage discharge and registration fees

Related: How much does it cost to refinance?

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Do I have to pay brokers?

The service mortgage brokers provide is free, so you don’t need to pay them anything. After the home loan is settled, the lender will pay the broker.

When you use an online home loan platform like Lendi, no costs will be passed onto you as the borrower.

Which bank should I choose?

There isn’t one bank or lender that will suit everyone’s circumstances. Lendi’s Home Loan Specialists work with you to find a lender that offers you a competitive interest rate and a home loan package that works for you.

It may be with a traditional, well-known bank or it could be with an up-and-coming online lender that suits your needs better.

Choose a time to chat with a Home Loan Specialist today to get your refinancing journey started.

Refinancing due to changes in your financial or life circumstances

Most home loan repayment terms are between 20 and 30 years. A lot can happen during this time, and it’s not unusual for you to experience changes in your life and income.

For many homeowners, the idea of having a home loan debt for so long is unappealing. If your income increases, you might consider refinancing in order to pay off your home loan faster.

Be cautious about reducing your loan term as you don’t want to bite off more than you can chew. When increasing your monthly repayments and reducing your loan term, take into account how this might impact your lifestyle and how you can afford to spend your money.

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A home loan with a variable interest rate can offer increased flexibility in how you choose to repay your loan. You are able to make uncapped additional repayments, so if you receive a bonus or unexpected sum of money, you could put it towards your home loan.

Fixed rate home loans don’t always offer this flexibility, but you may still be able to make some extra repayments.

On the other hand, if your income has been negatively affected, you might look to reduce your monthly repayment amount. By doing this, you will extend your loan term and likely pay more in interest over time. Lendi's experts can help determine if this is the right move for you.

A marriage, divorce or growing family can also impact your ability to make repayments and it could make sense to refinance.

Worried about the stress of refinancing?

Lendi’s expert Home Loan Specialists take the pressure off you. Refinancing can be complex, but we are here to help make the process as easy as possible and answer any questions you may have.

Get in touch today to find out if refinancing is a good idea for you.

How much can you save by refinancing?

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Got a home loan question? Just ask!

We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist here

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: refinance, interest rate, home loan, lender, variable interest, fixed interest, break cost

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Important legal stuff

Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856, Credit Representative 518849), 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 Aussie business. Our mission is to provide Aussies with the right experience when choosing a home loan from our panel of lenders including ClickLoans, a related body corporate of Auscred Services. Although Lendi compares over 1600 products from over 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 40% 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. We have an independent and founder led board.
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.
EXAMPLE: This example is current as at 20th October 2016. A Click Loans Online Principal and Interest Loan of $150,000 over 25 years has monthly repayments of $767. This is calculated based on the interest rate of 3.69%, comparison rate of 3.69%, upfront fees of $0 and annual fees of $0.
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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