THE BASICS OF REFINANCING

Chances are that your situation has changed, along with interest rates, and the market has moved since you initially purchased your property, however many years ago. It may be possible that the home loan that was perfect for you  back then is no longer delivering you the most suitable outcome. 

You’d be surprised at how many people sign up for their first mortgage and then file it away. Never stopping to consider if it needs reviewing, or if the equity in the home could be leveraged in another way.

Here, we spell out the basics about refinancing and why it should make it onto your annual to do list.

What is refinancing?

Refinancing lets you change your home loan to suit your circumstances. The idea is that you engage your mortgage broker on an annual basis to make sure you’re the loan that was the best fit for your situation back when you purchased your home or investment property, is still a good fit a year or so down the track.

How does it work?

Refinancing is essentially taking out a new home loan. You then use some or all of the funds from the new loan to pay out your existing loan. You can refinance from the same lender or an entirely different lender altogether.

Why should I refinance my home loan?

People refinance their loan for a lot of different reasons. Some of the main reasons include:

  • To access equity for renovations, to continue to add value to the home.
  • To consolidate debt, or to pay off credit cards.
  • To obtain a lower interest rate or a loan with more flexible features.
  • To access cash for another purchase such as a new car.
  • To switch from a variable rate to a fixed rate.

What are the potential benefits of refinancing?

The main reason that it pays to review your home loan on an annual basis is to ensure that the loan still suits your circumstances. For instance, you might require more flexible repayment options or simply be keen to secure a lower interest rate to reduce monthly payments.

Here are some additional potential benefits of refinancing:

  • Get flexible repayment options
  • Take a break from repayments if you are planning a holiday or a period of time off work
  • Secure a lower interest rate and pay off your loan faster. 
  • Consolidate other debt you may have like credit cards or personal loans
  • Unlock the equity in your property to finance a renovation, purchase an investment property or free up some funds to help your kids into their own home.

Does it cost anything to refinance?

This ultimately depends on when you took out your current loan and a number of other factors, which our brokers can easily determine for you.

There is a possibility that there may be exit fees to pay if your home loan was taken out before 1 July 2011 and there is also a fee known as a ‘break cost’ if you are bailing out of a fixed term loan. There may also be some borrowing costs associated with the new loan, but again, your broker can explain all of this to you should it apply to your situation.

 

At the end of the day, it’s important to review your home loan on an annual basis – if for no other reason than to do a quick check that you still have a product that is adequately suited to your needs. There’s certainly no obligation for you to refinance annually and there often may be no need to, but it pays to keep informed of any changes, new products or lenders that could be a part of the bigger picture in helping you to achieve your financial goals.

Each situation is different so get in touch with us today for a chat with one of our brokers.

 

* All lending subject to status and lenders criteria. Terms & conditions apply. This document contains general information only. Your own personal circumstances have not been considered and you should seek independent financial advice prior to making any decision on a financial product.