When and when not to refinance your home loan

Knowing when to refinance your home is not an exact science. It can depend on a number of variables and circumstances. 

Firstly, the home loan market changes all the time. Lenders frequently adjust their interest rates, change their loan terms, amend or add new features, or include extras to improve the level of flexibility they offer customers. 

In addition to market changes, your personal or financial circumstances can also influence your consideration to refinance. So if you’ve had your current home loan for a few years, or your financial circumstances have changed, it could be time to arrange a home loan health check with your local broker.

Best time to refinance

Homeowners who want to refinance their home loan, typically fall into four main categories: refinancing for a lower mortgage rate, refinancing for a shorter mortgage term, refinancing for cash-out, or refinancing for debt consolidation. These reasons can be the sole goal or a combination of the four.

Determining your reasons for refinancing will help guide you to a home loan lender who is more suited for the goals you want to accomplish. Deciding on the right time to refinance your home loan will depend on your personal and financial situation. So, speaking with an experienced broker who understands your financial position and goals, can make refinancing easier than it seems.

While refinancing is generally about saving you more money, it shouldn’t always just be about finding the lowest interest rate on the market. Over the course of your home loan, plenty can happen in your life, and your home loan requirements may change in terms of what you need in features and flexibility.

Refinancing with a new lender could get you access to better features. Similarly, refinancing with the same lender could also see you save in the long term. The right features could give you added flexibility such as an offset account, or other features to help you pay your home loan off faster and streamlining your banking products.   

Or, you may have built up some home equity. 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.

Refinancing can also make your life easier if you’re juggling a variety of different debts.  Refinancing your mortgage can also be a handy way to streamline money management through debt consolidation.

It can be a good idea to have the terms of your home loan reviewed once a year, and your Aussie Broker is ready to help you achieve your goals.

When not to refinance your home loan

While there are many benefits to refinancing your loan, it’s possible that when you reach out to your broker for a home loan health check, you’ll discover that now is potentially not the right time to refinance. There may be several factors that help you and your broker come to this conclusion. 

There are often costs associated such as switching fees or government fees to change. In general, these can range from $400 - $600 for a single property refinance. Particularly if you are on a fixed rate home loan, you’ll need to think twice about refinancing. This is due to the costs incurred in a discharge fee and an early termination fee.

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 could 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 help you do the sums to work out if refinancing will still leave you better off, even if LMI applies.   

You might also find that the set-up costs of a new loan outweigh the savings. While discharging a variable rate home loan does not require you to pay any early termination fees, it might still carry exit and set up fees, including an application fee, settlement fee and more. 

It is also important to consider if the new loan offers more than just a low rate. If the new product does not offer the features you need or the lender does not provide the service you would like, then now may not be the right time to refinance.  

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. To be sure refinancing is the right move for you, your Aussie Broker will crunch the numbers and handle the paperwork on your behalf.  

It all starts by setting a date for a home loan health check, then making it an annual event to stay on top of your home loan, year by year.

Get in contact with your local Aussie Broker today to see if refinancing is the right move for you. 

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