Benefits of Refinancing
A quick home loan comparison shows that interest rates vary between lenders. More to the point, some lenders reserve their most attractive rates for new customers, and shaving even a fraction off the rate you’re currently paying could lower your home loan repayments, see you save a bundle in overall interest charges and potentially own your home sooner.
But a lower rate is not the only benefit of refinancing. Your circumstances may have changed over the past few years and your home loan may not have the features or flexibility that match your current lifestyle. Refinancing could get you access to better features. The right features could give you added flexibility, help you pay your home loan off faster or streamline your banking products.
Or, you may have built up some home equity in your place, and refinancing can be a way of freeing up some money to achieve a variety of goals like home improvements or even investing in a rental property.
If you’re juggling a variety of different debts, refinancing can also be a handy way to streamline money management through debt consolidation.
Challenges of Refinancing
Along with the potential pluses of refinancing, there can be costs to consider. Your Aussie Broker will talk you through these to help you determine if refinancing is the right move.
As a guide, there may be some fees such as mortgage discharge fees on the old loan and application fees on your new home loan.
If refinancing sees you bailing out of a fixed rate loan early, you could face ‘break costs’. It’s hard to predict exactly how much you’ll pay as it depends on how market interest rates have moved since you locked into a fixed rate – but it is a potential expense to be aware of.
Similarly, 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 lenders mortgage insurance (LMI). This applies even if you already paid LMI when you first bought your place. Your Aussie Broker can do the sums to work out if refinancing will still leave you better off even if LMI applies.
The process of switching to a new loan may sound like a hassle but it can actually be surprisingly easy, especially with your Aussie Broker on side to help you find your new loan and then handle the paperwork on your behalf.