Getting the best out of your mortgage. Refinancing your home loan can allow you to access a cheaper interest rate, source new features such as offset that may help you pay off your loan faster, equity to renovate or invest and even consolidate debt to reduce your repayments and better manage your overall debt costs.
Why refinance?
People commonly refinance when circumstances change - either personal or marketplace circumstances. The most common reasons for refinancing are:
- to take advantage of a better interest rate, new loan features or a more suitable loan product
- to use existing equity to renovate or invest
- to consolidate debt such as home, car and personal loans.
The costs of changing your loan or lender
There are a range of fees and charges associated with exiting an existing home loan and establishing a new one, so you need to make sure the costs of changing don't outweigh the savings. Refinancing will almost always cost you money at the beginning, but should save you money over the longer term. The costs can range from hundreds to thousands of dollars, depending on your loan balance, type of loan you currently have and how long you've held it for. Whether you are simply switching loans within your current lender or moving to a completely new lender altogether may also affect costs.
Bank/lender fees to watch out for
Some fees you may be charged include:
- standard exit/discharge fees;
- deferred establishment fee;
- deferred settlement fee;
- penalty interest (fixed-rate loans); and a
- switching fee (when refinancing with your existing lender);
- as well as the usual establishment fees for your new loan.
Be aware that loans with low introductory or low ongoing interest rates may have higher exit fees.
Review your position every two years
Ideally you should review your home loan and financial position at least every two years, as well as any time your circumstances change significantly. If you suspect you could be getting a better deal, for example when interest rates drop substantially, or you are coming to the end of a fixed rate term, you should investigate your options thoroughly so you aren't paying more than necessary.
Assess your situation confidentially with a professional
If you are concerned or not sure, the first thing to do is assess your options thoroughly with someone who understands your situation. Talk to your accountant, then talk to your local mortgage broker. A good mortgage broker will have loans assessment software and they will be able to use their technology to do the sums for you.
A changing market
The home loan market is very competitive and always changing. There are literally thousands of home loan options to choose from and, in today's climate, even standard variable rates differ from lender to lender. The fastest way to get to the best decision for you is to get assistance. So talk to a local mortgage broker before making a final decision.
