Different home loan types could have different rules around refinancing
Understanding the difference between loan types and their impact on refinancing options could save you money in the long term.
The good news is that self-managed super funds (SMSF) home loans can be refinanced just like any other home loan. This allows you to benefit from everything refinancing might have to offer. For example, accessing a better deal, a lower rate and flexible features.
However, there are some things to take in to account. SMSF loans usually come with a long list of terms and conditions, so familiarise yourself with these before you refinance. They may also take longer to process, come with a range of rules and restrictions, and can be quite complex. It makes sense to seek professional help to achieve your refinancing goals when it comes to SMSF loans.
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 agreement states 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 likely to break that agreement. As a result, your lender may expect to be compensated through fees. With this in mind, it’s a good idea to speak to an Aussie Broker who can help you decide if refinancing is right for you.
There are some instances where it may be beneficial to refinance an interest-only loan. For example, 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. If you’re curious about refinancing an interest only loan, you may want to talk to your broker to see if it’s the right time to switch.
The good news is that refinancing a variable rate home loan is usually easier and more cost effective than fixed loans. This is because there are no early termination fees for variable home loans, which were abolished back in 2011. However, there may be some other fees to consider. These include mortgage discharge fees on the old loan and application fees on your new home loan.
You might also 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, talk to your local Aussie Broker. They can crunch the numbers and help you find out if refinancing is right for you. Plus an appointment with an Aussie broker is free. Get in touch today.