Thinking about refinancing your home loan? If you’ve been through the process before, you’ll know what to expect. However, if you have never refinanced a home loan, you’ve probably got many questions that you need answering such as “What are home loan interest rates?”, “Which home loans are best?”, or “How can I compare home loans?”
We’ve highlighted some of the important things to consider when you decide to refinance and addressed some of the common questions homeowners have.
Getting a good deal
Securing a lower home loan interest rate is often the main reason people want to refinance a home loan, but it’s important to remember that the best deal for you is the one that suits your personal circumstances and goals. You should look beyond the interest rate when you compare home loans — using tools such as a home loan repayment calculator can help you estimate your repayments over time and assess the impact of different terms.
You should consider:
- any fees that could make the overall cost of the loan higher (including a loan establishment fee)
- whether you want an offset account or redraw facility
- if you’ll have the option to make extra repayments, and any allowance cap
- the duration of the home loan term and repayments
There’s no point getting the lowest rate if it doesn’t help you to meet your financial goals in the future.
Your reason
While saving money is often a priority when refinancing, it’s important to think about your long and short-term financial goals, and how refinancing your loan will impact them. Consider whether you want to:
- invest in a new property
- unlock equity to renovate your home
- reduce your monthly repayments
- pay off your home loan faster
- take advantage of variable home loan rates depending on market conditions
You may be worried about rising interest rates
If this is your main concern, you have options. You may want to consider a fixed-rate home loan, or look at fixing a portion of your loan so that your repayments stay the same regardless of any rate rises. Alternatively, understanding how variable home loan rates work may help you decide whether you prefer a fixed vs variable structure.
You might want to renovate or buy an investment property
If your property has increased in value, you may have equity available. This means you may be able to borrow against that equity to fund renovations or use it instead of a cash deposit to purchase an investment property.
You may have a savings goal
Whatever your reason for wanting to save money, refinancing your home loan could help you reach your goal, especially if you choose a home loan with an offset account. An offset can be a good way to reduce the interest paid on your home loan each month. The savings add up over time and you could end up paying your home loan off faster and saving a significant amount in interest.
You might want to consolidate debts
Refinancing your home loan to cover outstanding debts means you’ll have a single repayment and one interest rate to manage. Your home loan rate is likely to be lower than the interest rate of your credit card or car loan, and you could end up with a smaller total repayment amount.
Beware, consolidating your debts could save you money in the short term, but you could end up paying more in the long run if fees, extended terms, or other interest costs outweigh your savings.
Understanding your motive for refinancing will help you, or your lender/broker, work out the home loan that’s best suited to your financial situation.
Know the costs
What does it cost to refinance? Refinancing a loan will often involve several upfront and ongoing fees, and this is the same with any home loan. That’s why it’s so important to weigh up the potential savings and benefits against the associated costs.
Both your old home loan provider and your new one may charge you fees, but the amount you need to pay will vary depending on your circumstances. To be prepared, here’s a list of fees and costs that could be included in your refinancing bill:
- Break costs
- Discharge settlement fee
- Application/establishment fee (this may include a loan establishment fee)
- Property valuation fee
- Settlement fee
- Mortgage registration fee
- Lenders Mortgage Insurance (if your LVR is still more than 80%)
- Annual or monthly fees
Other things to consider
There are a few more things you should think about when you’re refinancing your home loan, the first one being your loan term. Consider whether you want to extend your loan term or stick with the length of your current home loan. Adding extra years to your term could reduce your monthly repayments, but the total amount of interest paid over the loan lifetime could be much higher.
You should also consider features such as offset accounts, redraw facilities or even interest-only mortgage options if they suit your goals. Some lenders offer interest-only mortgage structures (for a set period) which may appeal to certain borrowers, just be sure you fully understand the implications.
If you’re thinking of building, construction loans typically operate as interest-only until the keys are handed over. It’s also likely you won’t be able to switch home loans or refinance until completion of construction.
Finally, think about getting help. If the thought of refinancing overwhelms you, it’s probably not something you should do by yourself. Reach out to a broker or home loan lender as soon as you decide you want to refinance. They’ll review your situation, work out if it’s the right time for you to refinance, and help you weigh up the pros and cons. They’re the experts, so they will answer your questions and guide you through the refinancing process as smoothly as possible.
Ready to get started?
If you want to refinance your home loan, you can speak to your broker, enquire online or make an appointment to talk to one of our experienced home lending specialists by calling 13 25 77. Whether you want to visit a branch, have a mobile lender meet you at work, or prefer a video call with a virtual lender from the comfort of your sofa, our team is available to help you.
Important information
Banking and Credit products issued by Police & Nurses Limited (P&N Bank).
Any advice does not take into account your objectives, financial situation or needs. Read the relevant terms and conditions, before downloading apps or acquiring any product, in considering and deciding whether it is right for you. The Target Market Determinations (TMDs) are available on our website or upon request.