In today's competitive lending market, refinancing your home loan can offer several advantages. When thinking about ways to save money, reduce financial stress, and improve financial health, many Australians turn to refinancing their home loans.
What is Home Loan Refinancing?
Refinancing simply means switching your existing home loan to a new one, either with your current lender or a different bank. It involves paying off your existing mortgage and replacing it with a new loan that ideally has more favourable terms, such as lower interest rates or better repayment options.
Why Consider Refinancing?
1. Lower Interest Rates and Reduce Monthly Repayments
One of the biggest draws of refinancing is the potential to secure a lower interest rate. Even a slight reduction could translate to significant savings over the lifetime of your loan. With a lower interest rate, your monthly repayments could decrease, easing your monthly budget and providing more disposable income for essentials or savings.
2. Pay Off Your Loan Sooner
Alternatively, if you keep repayments at the same level after refinancing to a lower rate, you’ll effectively reduce the length of your loan term, becoming mortgage-free sooner and potentially save thousands of dollars in interest.
3. Access Home Equity
Refinancing could allow you to borrow additional funds by accessing your home equity, the difference between your property's current value and the remaining balance on your loan. This is often used to fund renovations, investments, or other significant purchases. Generally, only 80% of property value is accessible. While there may be exceptions, loans with a loan to value ratio (LVR) above 80% are often charged Lenders Mortgage Insurance (LMI) to reduce risk to the lender.
4. Debt Consolidation
Refinancing can also be used to consolidate multiple debts, such as personal loans or credit cards, into a single, manageable repayment, potentially lowering your overall interest costs.
How Does Refinancing Work?
Step 1: Evaluate Your Current Loan
Begin by reviewing your existing mortgage terms, interest rate, and remaining balance. Compare these against current market rates to assess potential savings.
Step 2: Compare and Shop Around
Investigate loan options from various lenders. Consider interest rates, fees, loan term, repayment flexibility, and customer service quality. Online calculators can help estimate potential savings.
Step 3: Application Process
Once you've selected a lender, you'll need to apply, which involves submitting financial details such as income, assets, liabilities, and an estimate of the property's value. Approval typically requires a credit check and a formal property appraisal is undertaken by the lender.
Step 4: Loan Approval and Settlement
If approved, your new lender will send you a formal loan contract to sign, and coordinate with your current lender to settle the old loan. This usually takes a few weeks, and your new loan terms become active from settlement day.
Things to Consider Before Refinancing
- Fees and Costs: Refinancing might involve application fees, valuation costs, discharge fees, a longer loan term or break fees. It's important to consider these and any other relevant costs when making your decision to refinance.
- Loan Features: Common considerations include the availability of offset accounts, redraw facilities, or repayment flexibility when choosing a new loan.
- Timing and Your Financial Situation: Refinancing may be beneficial if you can access a lower rate than your current loan or your financial situation has improved.
Is Refinancing Right for You?
Refinancing can offer substantial financial benefits, but it's essential to approach it strategically. Evaluate your circumstances carefully, consult financial professionals, and choose the refinancing option that best aligns with your goals.
Need Help?
Contact QBANK’s Home Loan Specialists for assistance today on 13 77 28. You can also view our dedicated page on refinancing for more information and to apply online.
