For Australian homeowners looking to save money in 2022, refinancing could be a solution. Data from the Australian Bureau of Statistics (ABS) shows that more than 498,000 Aussies refinanced their home loan as of October 2021, with a massive $16.08 billion worth of home loans refinanced from one lender to another. But before you go ahead, it’s important to check that the benefits of refinancing outweigh the costs. To help you make an informed decision about refinancing your home loan, here are some important factors to consider.
Your existing home loan
Before refinancing your home loan, ensure you have a clear understanding of how your current home loan is set up and what features are included. Ask your lender for a key fact sheet that sets out the pricing and other important information about your home loan in an easy-to-read format.
This document will include details of interest rates, the total cost of your home loan, monthly and annual repayments, and an explanation of how repayments could be impacted by a change in interest rates. Use the key facts sheet to compare home loan products and features across various lenders, and to see how your home loan stacks up against what’s available in the market.
The refinancing process
When comparing home loans and considering refinancing, remember that interest rates are just one of the many variables to think about. You’ll also want to compare:
- Monthly repayments
- Fees charged by the existing lender and the new lender
- Loan term
- Loan features including redraw facilities, offset account, or a line of credit
Refinancing a loan from your existing lender to a new lender means you could be faced with extra fees. As well as an establishment fee charged for setting up a new loan, and the ongoing fees charged each month for administering the loan, your existing lender may charge early termination fees if you end your loan term early.
So before you go ahead and refinance, weigh up the cost of these fees against any potential savings in interest rates to ensure refinancing is the right option from a cost point of view. You should also discuss your thoughts with your mortgage broker to be sure you have compared the options appropriately and to see if there are any other options for you.
Reasons to refinance
There are many good reasons why borrowers choose to refinance a home loan.
Here are some of the pros and cons of refinancing a home loan:
- Switching to a lower interest rate reduces your monthly repayments and could help you pay off your home loan much faster.
- Accessing the equity in your home frees up cash to use to renovate, re-invest, buy a new car, consolidate some debts or pay for any unexpected expenses.
- Increasing your loan term may reduce your repayments while decreasing your loan term means you’ll pay less interest over the life of your loan.
- Consider all the fees charged by lenders, like exit fees, valuation fees, application fees, and break fees.
- If your resulting equity is less than 20% of the property value, you may be required to pay Lenders Mortgage Insurance (LMI) when you refinance.
- Refinancing your home loan often could impact your credit score, possibly making it harder to get lower interest rates on future applications.
Finally, get advice from your mortgage broker before refinancing your home loan or switching lenders, as your mortgage broker can help you determine if refinancing is right for you, help streamline your application, and ensure you understand what’s required of you at each step of the refinancing process.
Contact a Mortgage Express broker today to find out more about refinancing your mortgage.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.
Finservice Pty Ltd (Mortgage Express) is authorised as a corporate credit representative (Corporate Credit Representative Number 397386) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 123 600 000 | Full member of MFAA | Member of Australian Financial Complaints Authority (AFCA) | Member of Choice Aggregation Services.