The term ‘refinancing' simply means switching from one home loan to another. It's a step that can offer a number of advantages including the opportunity to save with a lower rate or access improved loan features. Switching can also provide a means of accessing home equity, providing low cost funding for home improvements, investing or other personal goals.
Refinancing can come with some downsides. There is a certain amount of paperwork involved, and switching can come with a range of costs (more on these later). On the plus side, we can streamline the process and help you decide if refinancing could work for you. So even if you're comfortable with your current home loan, it's worth knowing how refinancing works.
Competitive market puts borrowers in the driver's seat
One of the main reasons home owners choose to refinance is the potential to secure a cheaper loan. In today's highly competitive lending environment new mortgage products are launched everyday and banks are keen for your business. It can make now an ideal time to shop around.
As a guide to the savings refinancing can achieve, switching a $300,000 loan with a rate of 6.4% to one costing 5.9% could cut $92 from your monthly repayments. That's an overall savings of up to $27,692 over a 25-year term.
As noted earlier, refinancing does involve some costs. Exit fees have been banned on variable rate loans taken out after 1 July 2011 but they could still apply if you have held your current loan for less than five years. We can review your loan contract to see if you're likely to be impacted by exit fees.
You may also need to budget for discharge fees on the old loan (allow around $350), and possibly upfront fees on the new loan. These will vary between lenders, and again we can crunch the numbers for your situation. Mortgage registration fees – usually about $200, may also be payable to your state/territory government.
It is important to note that if you are borrowing 80% or more of your home's market value, lenders mortgage insurance may apply. You may be able to add to this to the loan balance but it will mean paying interest on the premium over time.
Once you know the costs of refinancing, it's easy to see whether switching will put you ahead financially.
Take advantage of improved features
For some home owners, the appeal of refinancing lies in taking advantage of improved loan features. Flexible payment and rate options can make your loan easier to live with. Other features like an offset account or redraw can help you pay off the loan sooner.
With a choice of over 300 loans available through 27 different lenders, we make it easy to see if there is a better option available for you. Or take our online Mortgage Stress Test to check whether you are getting the most out of your loan. A better deal could be just around the corner.