Understanding your refinancing options and interest rates is an important part of the process
A key step in the refinancing process is understanding the different loans and rates that are available to you. There’s no one-size-fits-all approach to refinancing. It is, however, a good idea to give your home loan a health check every so often. This is because the loan you originally chose may no longer be right for you as your circumstances may have changed over time.
While you might have learnt about the different types of home loans and rates when you first chose your loan, it’s a good idea to take a quick refresher. There may be an option available to you now that wasn’t available when you first took out a loan. It’s all about doing the right amount of research. Your Aussie Broker can crunch the numbers to see if refinancing is the right move for you.
Comparing refinancing rates makes sense when you’re looking to refinance. It’s important, however, to remember that the loan with the lowest rate may not be suitable for your needs. Your Aussie Broker can help explain the big picture when it comes to different loans and rates to help you choose the loan that’s right for you.
Here’s a quick guide to some loan types and terms you are likely to come across when refinancing.
‘Basic’ home loans are loans that come with a lower rate. Because you’ll receive a lower rate on this type of loan, you could expect fewer features than a ‘standard’ loan.
The definition of ‘basic’ varies between lenders, so it’s worth checking that a basic loan won’t limit your ability to make extra repayments and pay off your home loan sooner.
If you have some extra cash or ‘rainy day’ savings, you may be able to put that money to work by refinancing to a loan with an offset account. This allows a savings or transaction account to be linked to your home loan. By doing this, the positive balance can offset your outstanding loan balance, helping to reduce your repayments.
For example, say you have $20,000 in your linked offset account and an outstanding loan amount of $350,000. Instead of receiving interest on your savings, your monthly interest repayment will be calculated on a loan balance of $330,000.
A package loan bundles your home loan with other financial products. These financial products may include a transaction account or a credit card. Often, lenders will provide fee waivers or discounts on this type of loan.
With a package loan, you may also receive a discounted interest rate across the life of your loan. An annual package fee may apply, so you’ll need to ensure that any fee waivers and the rate discount outweigh the cost of the package fee.
When you have some equity in your home, refinancing with a line of credit could let you tap into that equity. Unlike a traditional home loan, a line of credit doesn’t provide you with funds in one lump sum payment. It gives you access to funds up to your approved limit. You’ll also have the freedom to withdraw the money when you need it — for home improvements, investing or even a holiday. Think of it like a credit card with your home as the security. You only pay interest on the funds you actually use. It’s important to keep in mind that at some point, you’ll need to repay the principal amount, too.
If you’re self-employed, or don’t have all the refinancing documents normally required as proof of your income, a low-doc loan may be the right solution for you. Rates - either fixed interest rates or variable interest rates — are sometimes higher than standard loans.
It’s not necessarily your only option if you’re self-employed. Speak to your Aussie Broker about alternate loan options you could eligible for.
When refinancing, you might hear about something known as FastRefi. It’s important to know that this process is only available through some lenders. Fast refinance allows for quick refinancing when an in-person property valuation is not required. The refinancing can be done in less than two weeks. This is because the new lender agrees to take on the debt before the title of the property is transferred.
Interest-only home loans are a type of loan where your repayments only cover the interest on a mortgage without paying off the principal.
However, it’s important to remember that at the end of the interest only period you will need to start paying off the principal and interest.
If you are looking for a taste of both worlds, you might consider refinancing to a split loan. Essentially, you would be splitting your loan in two and charging it at different rates. Generally, part of your loan is fixed for a period of time, while the rest of the balance is charged at a variable rate.
The upside of this loan option is that it helps you know what your repayments will be for the fixed portion, but you may also benefit if rates go down for the variable portion of the loan.
When you’re looking to refinance, it makes sense to compare rates - and not just with your current lender, but also the wider home loan market. In today’s competitive market, if you have a home loan interest rate that starts with a 4 or higher, it’s may be the right time to shop around.
There are of course different interest rates offered depending on whether you’re an owner occupier or an investor. You may also receive a different rate if you’re making interest only or principal and interest repayments. No matter your circumstances, when refinancing, there’s always a right home loan rate to be found with the help of your Aussie Broker.
It’s important to remember there’s more to a home loan than just a low interest rate. When refinancing, keep in mind what you’re trying to achieve. Do you want to pay less? Add or remove features? Consolidate debt? Or maybe you want to unlock some home equity? Remembering this when you’re comparing loans could help you decide which option is right for you.
Your Aussie Broker will take the time to learn why you’re looking to refinance and understand what your property goals are. They’ll then compare thousands of loans from our panel of over 20^ leading lenders to find the one that’s right for you.