Have you out grown your home loan? .........take advantage of lower interest rates and lender cashback offers.
Refinancing a home loan involves:
- Replacing your current home loan with a new one
- Refinancing your home loan can offer savings on interest and/or better loan features
- There are costs to weigh up when refinancing your home loan
- Your Mortgage Choice broker can explain how to refinance your home loan
There is a whole variety of reasons why refinancing a home loan can be a sensible step.
Should I refinance my home loan?
If you’re keen to secure a better interest rate or enjoy more loan features, refinancing your home loan can be the solution. Refinancing is also an opportunity to get control of debt or tap into any home equity you’ve built up.
Refinancing to secure a better interest rate
The most popular reason homeowners choose to refinance a home loan is to secure a lower interest rate and reduce their monthly repayments. However, refinancing can come with some costs, so it's essential to weigh up the savings of refinancing against the expense involved.
Switch between variable/fixed rates
If you'd prefer the certainty of repayments will stay the same for a period of time, you may wish to switch to a fixed rate. Refinancing your home loan lets you do this. Or, you may decide you'd like to take advantage of a lower variable rate as you can accept the risk that rates may rise in future.
Refinancing to access home equity
Your home is likely to be one of your most valuable assets, and by harnessing home equity you have the opportunity to build additional wealth or simply achieve personal goals. Find out more about accessing your home's equity.
Refinancing to access better loan features
Flexible repayments
Making extra repayments at no additional cost to help pay off the loan sooner.
Repayment holiday
A break from repayments or reduced repayments to cover career changes or breaks e.g. maternity leave.
Offset account
Having a savings or transaction account linked to your loan. The balance of the linked account is deducted from, or offset against, the balance of your loan when the monthly interest charge is calculated.
Redraw facility
Enabling you to withdraw any additional repayments you have made on your loan. Handy if you need cash in an emergency.
Flexible rate options
Dividing your rate between fixed and variable components, or even making interest-only payments for a period.
Loan portability
The ability to take your loan with you when you move from one home to another without the expense and hassle of arranging a new loan.
Key costs of refinancing
Depending on your circumstances, not all of these will apply. It’s worth having a chat with a Mortgage Choice broker to explore the costs involved with your individual situation, and balance these with any potential cost savings of switching home loans.
Exit Fees
Exit fees may apply when you pay out a loan early, usually in the first three to five years of your term. It could be a percentage of the remaining loan balance or it may be a set charge. Check your loan contract for more details.
Although exit fees have been banned on new loans taken out after 1 July 2011, they could still apply to loans taken out before this date.
Worth knowing: Exit fees don't include break costs, which can be imposed if you bail out of a fixed rate loan before the fixed term expires. It’s worth speaking to your Mortgage Choice broker if you are thinking about refinancing a fixed rate mortgage.
Borrowing costs
When you refinance, your new lender may charge a range of upfront fees. However not all lenders charge these fees and some may be negotiable.
They may include:
- Loan application fee- charged when you apply for a new home loan
- Valuation fee- your lender may charge a fee to have your property valued by a professional property valuer
- Settlement fee- your lender may charge a fee to pay out your current mortgage
Lenders Mortgage Insurance
LMI is a type of insurance designed to protect the lender, not the home owner, if you cannot keep up the loan repayments. It applies if you borrow 80% or more of your home's value and isn't transferable between lenders. This means that even if you paid LMI when you first purchased your home, chances are you'll be asked to pay LMI again when you refinance.
You may be able to capitalise LMI (add it to the loan) though you need to be careful that this won't push your level of borrowings over the lender's preferred 'loan to valuation ratio' (LVR) - the amount you borrow as a percentage of your home's value.
Stamp Duty & fees
Some states charge a tax on your mortgage which is known as stamp duty, which is calculated on the amount of the loan. If you increase the size of your loan when refinancing, stamp duty may be payable.
You may also need to pay a Mortgage Registration Fee which is imposed by the Land Titles Office (or equivalent) for registering your mortgage onto the title record for the property.
