How regularly do I need to refinance?

Refinancing your home loan is a great way to make sure you are getting a loan that suits your lifestyle and financial needs. There aren’t rigid rules about when you should refinance and how often to do it — it’s completely up to you.

However, it’s generally a good idea to look into refinancing every two years. If the rate that you got a few years ago is still competitive with today’s rates, you might not feel the need to refinance. In saying this, the RBA cash rate is currently at a historic low which means that interest rates are also low. In times like this, it’s a good idea to consider refinancing.

If interest rates are frequently fluctuating, it would make sense to refinance more regularly.

Lenders will also have requirements for borrowers looking to refinance. Most of the time, you will need to have a consistent loan repayment history. You should also be able to prove you have a stable income and decent credit history. If you aren’t able to demonstrate these things, there are some lenders that offer home loans to those who lack documentation or have bad credit.

• Related: Can I ask my lender to lower my rate?

When should I consider refinancing?

When the RBA cash rate is low, as it is now, refinancing might be a good option. Everyone’s situation is different and getting a lower interest rate isn’t the only reason to refinance.

Changes in your financial situation may also mean that refinancing makes sense. If you are experiencing a loss in income that makes it hard to meet your monthly minimum payments, it might be time to consider refinancing. In cases like this, you may be able to reduce your monthly repayment amount by extending your loan.

Alternatively, if you are earning more money it can also make sense to refinance your home loan. If you up your monthly repayments and reduce your loan term, you can have your loan paid off much faster and save on interest.

By refinancing, you can get access to loan features that may improve your home loan experience and help you pay it off faster. Other reasons to consider refinancing include:

• If interests rates have lowered
• To consolidate your debt
• You want to renovate your home
• Your partner or spouse is going to start/stop contributing to repayments
• You are expecting a baby
• You’re interested in using your home loan equity

Related: 6 questions to ask before refinancing

When should I avoid refinancing?

Generally, avoid refinancing when there is no monetary benefit in doing so. If any associated refinancing costs outweigh the savings that a low interest rate could give you, it’s not worth it. Break costs may arise for those refinancing out of a fixed rate loan, so it’s important to know how much those fees might add up to. A broker can do the maths and work out if the benefits outweigh the costs.

Refinancing before you have 20% equity in your home can result in Lenders Mortgage Insurance (LMI) fees. Unless you are prepared to add these fees to your loan balance, it might be best to wait until your equity has increased. You can increase your equity by:

• Making extra repayments
• Renovating your house to increase property value
• Increase your monthly minimum repayment amount
• Instead of making one monthly payment, switch to paying weekly or fortnightly

As mentioned above, refinancing can attract break costs and fees if you’re on a fixed rate home loan. Weigh up if the benefits of a new loan (e.g. lower interest rate) are worth it. Even variable rate loans that were entered into before 31 July 2011 can attract exit fees.

Not sure if refinancing is the right step for you right now? Chat with one of our Home Loan Specialists for free expert advice today.

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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.