Thinking about refinancing? Along with the potential pluses of refinancing, there can be costs to consider depending on your current loan type.
Refinancing a self-managed super fund home loan
The good news is that self-managed super funds (SMSF) can be refinanced just like any other home loan, allowing you to benefit from everything refinancing might have to offer, such as accessing a better deal, a lower rate and flexible features.
However, there are some specific considerations to take into account. SMSF loans generally come with a long list of terms and conditions, so familiarise yourself with these before you refinance. They can also take longer to process, come with a range of rules and restrictions and can be quite complex, so make sure you seek professional help to achieve your refinancing goals.
Refinancing a fixed term home loan
If refinancing requires you to bail out of a fixed rate loan early, you could face ‘break costs’. This is because a fixed rate home loan is a contractual agreement with a lender that you'll repay a fixed amount of interest on a loan for a certain period of time.
By switching to a different lender you are breaking that agreement, and your lender will expect to be compensated through fees. With this in mind, it’s a good idea to speak to an Aussie Broker who can do the sums to work out if refinancing will leave you better off.
Refinancing an Interest Only home loan
There are only a few instances where it may be beneficial to refinance an interest-only loan. For instance - if interest rates have fallen and you are still paying a higher interest rate, your interest only period has ended, you have decided to make the switch to principal and interest or you wish to access equity in your home - you may want to talk to your broker to see if it’s time to switch.
Refinancing a variable rate home loan
The good news is that refinancing a variable rate home loan is easier and cheaper than fixed loans. This is because there are no early termination fees for variable home loans, which were abolished back in 2011. However, there will likely be some other fees to consider such as mortgage discharge fees on the old loan and application fees on your new home loan.
You might need to factor lenders mortgage insurance (LMI) into your costs. If you plan to refinance but have less than 20% equity in your home (in other words you are borrowing 80% or more of your home’s market value) you will be asked to pay LMI. This applies even if you already paid LMI when you first bought your place.
Whichever loan type you have, rather than wondering if switching to a new home loan is the right step for you, skip the what-ifs by talking to your local Aussie Mortgage Broker. They can crunch the numbers and help you find out if refinancing is right for you.