With interest rates now sitting at record lows, you might be wondering if refinancing is right for you. But, before you make any decisions, it's important to know what refinancing is, how it works and how it might impact your bottom line.
That's why we've put together some answers to your most commonly asked questions.
Q: What is refinancing?
A: Refinancing is the replacement of an existing debt obligation with another debt obligation under different terms – sometimes referred to as ‘switching'.
Q: Why do people refinance?
A: On average, Australians refinance their home loan once every three to five years, usually because they want to:
- reduce their current home loan repayments
- be able to pay off their mortgage faster
- upgrade or downgrade their home
- change lenders because they've had a bad experience
Q: How much will refinancing cost me?
A: Refinancing costs will vary from loan to loan, but generally may include:
- Borrowing costs
- Exit fees – which may apply when you pay out a loan early or break your fixed term
- Lenders Mortgage Insurance (LMI) – will apply if you borrow 80% or more of your home's value
- Stamp duty may also be payable when you refinance
- Other fees
Q: Will I save on interest when I refinance?
A: One of the biggest reasons for refinancing your mortgage is to take advantage of lower interest rates. Your local home loan expert can compare hundreds of loans to find one that is not only competitive, but is also better suited to your unique financial needs.
However, you'll need to consider if what you save on interest is greater than what it may cost to refinance.
Q: How can I be sure that I'm getting the best deal?
A: When refinancing, you'll have to choose a lender, and the interest rates and fees offered by each lender can vary quite widely. When deciding whether to refinance, it's important to consider the total cost of refinancing by taking both interest and fees into account.
Don't forget, your local Mortgage Choice broker is here to help. They can work out these costs with you, and also look at if refinancing is the right step – just give us a call.