A guide to refinancing your home loan

Thinking about refinancing your home loan? If you’ve been through the process before you’ll know what to expect, but if you’ve never refinanced a home loan, you’ve probably got many questions that you need answering. Questions such as "What is home loan refinancing?", "How do I refinance my home loan?", and "What is the cost of refinancing?".

In this article we’ve highlighted some important things to consider when you decide to refinance and addressed some of the common questions we hear from homeowners.

Getting a good deal

Securing a lower home loan interest rate is often the main reason people want to refinance their home loan, but it’s important to remember that the best deal for you, is the one that suits your personal circumstances and your goals.

This could mean that the loan with the lowest interest rate, is not actually the best choice. It’s important to look past the rate and consider everything else that’s involved with the loan and refinancing process, such as:

• any fees that could make the overall cost of the loan higher,
• whether you want an offset account or redraw facility, and
• if you’ll have the option to make extra repayments, and any allowance cap.

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, or pay off your home loan faster.

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.

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 the equity in your home 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 to be 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 your outstanding debts means you’ll just have a single repayment and one interest rate to think about. Your home loan rate is likely to be lower than the interest rate of your credit card or car loan, so 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. You might want to think about using what you save on interest or fees for extra home loan repayments.

Understanding your motive for refinancing will help you – or your lender/broker – work out the home loan that is 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, this is a list of fees and costs that could be included in your refinancing bill:

• Break costs
• Discharge settlement fee
• Application/establishment fee
• Property valuation fee
• Settlement fee
• Mortgage registration fee
• Lender’s 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. As part of the review and research process, 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, however, the total amount of interest paid over the loan lifetime could turn out to be much higher, costing you far more.

You should also consider features such as offset accounts and redraw facilities and how important they are to you. You may find there are banks and financial institutions offering home loans with low interest rates, but that they don’t include the features you need – or if they do, there is an added fee or cost.

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.