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Refinancing Home Loans

Tyrone Wiseman

Should I Refinance my Home Loan Regularly?

Because the RBA cash rate is so low at the moment, lenders are continually offering new interest rates and loan products which has created a very competitive market for mortgages. This not only means that there are a lot more options and possibilities for people looking for home loans, but also people that already have home loans. This is because most people no longer stay with the same loan or lender for the full 30 year home loan term. In order to refinance your loan, considerations should be taken in regards to your individual circumstances, your current needs, and your future financial goals. 

There are three main questions to ask when you’re considering refinancing your loan:

When should you consider refinancing?

Most people think that refinancing is just used to reduce loan payments or the interest rate on the loan - if you feel that you are paying too much interest of that your repayments are too much. However, there are also certain parts of your life that could encourage you to look at refinancing, such as;
  • An increase of equity
  • Children starting school
  • Re-entering the workforce
  • Paying off other debts
  • Children leaving home
All of these points could be a valuable reason as to when refinancing should be considered. 

Why should you refinance? What benefits does it give you? 

Lower Rate: Most people look at refinancing because they feel that they are paying too much interest. While switching to a loan with a lower interest rate while still maintaining the same repayments, could reduce the loan term and total interest, your decision to refinance should not be based on a lower interest rate alone. You also need to consider the costs of the refinancing itself and also think about your future goals and objectives and whether this will affect you achieving them.

Improved Loan Features: Because the mortgage market is so competitive now, lenders are bringing out more and more options on their loan products that provide advantages to the mortgagee. If you've already had your mortgage for a while, there is a possibility that your current loan does not have these features, and there is a possibility that you could largely benefit from them.
Some examples include:
  • Repayment flexibility - ability to make extra repayments
  • Redraw facility - allowing you to redraw from your extra payments
  • Flexible rates - switching between a variable and fixed rate, or splitting your loan may also assist you
  • Portability - taking your loan with you if you move could save fees

Eliminate Features you Don't Need: There may be some features on your current home loan that might not be necessary to have anymore as your circumstances may have changed. Loans that have extra features generally have higher interest rates and repayments, whereas, basic loans will have a lower rate. Depending on your situation, you may not need those extra features anymore and could therefore refinance to a loan that has no features but a much lower interest rate. 

How often should you review your mortgage?

Reviewing your mortgage once a year will mean that your mortgage will stay up to date with your personal and financial circumstances. By doing regular check ups on your mortgage and comparing it to other products available, you can be assured that you will never pay too much on your mortgage. 

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