How do you know when it's a good time to refinance your mortgage?
Most experts recommend that you conduct a financial health check at least every 3 years and that you review your home loan at least once a year.
But how do you know when it's a good time to refinance? Is it as soon as you've sourced a better rate? Is it when your existing mortgage no longer matches your needs? Or is it when the cash rate is expected to fall?
It's a difficult question, so we put it to our panel of home loan and finance experts. Here's what they had to say (plus some things to think about before you decide to refinance your mortgage).
If you're looking to refinance or you'd like to compare refinance home loans, check out our comparison of refinancing loan options.
It may be a good time to refinance if:
The right time to refinance will largely depend on your personal situation and you should discuss your options in detail with a mortgage broker, accountant and financial planner to ensure that refinancing makes financial sense for you.
Generally, it may be time to switch to a new lender when:
- You're lender's interest rate is no longer competitive
- You encounter a major financial or lifestyle change (e.g. starting a family or starting a new job)
- You're looking for features that your existing home loan does not offer (e.g. the ability to access equity in existing property or the ability to make unlimited additional repayments)
- You would like to switch to a fixed-rate or split-rate loan to take advantage of a low-interest rate environment (and if you believe interest rates are likely to rise in the near future)
- You need to consolidate debt
Learn more about the refinancing process to decide whether refinancing is right for you.Back to top
One of the most common reasons to refinance your mortgage is to find a more competitive interest rate to lower your repayments, but there are several lifestyle and financial factors you need to consider before making the move.
- Lifestyle needs. Whether you're thinking of renovating or starting a family, you need to consider how your lifestyle will impact your borrowing needs. For instance, if you'd like to access equity you have in existing property to help fund a renovation you may want to consider refinancing to a line of credit (LOC) or home equity loan or a mortgage that offers an offset account and redraw facility.
- Financial situation. You should talk to a financial adviser or accountant to help plan your budget for the future, and to help you decide whether now is the right time for you to refinance. A mortgage broker can help you understand how much you can afford to borrow so that you can comfortably meet your repayments. Any change in your personal situation may also affect your borrowing capacity so make sure you factor this into your budget plan. For example, if you plan to have kids you may want to ensure that you have a contingency buffer for unexpected medical expenses or a high-interest savings account to help fund tuition fees.
- Job security. The security of your current employment is another key factor to consider when deciding whether now is an ideal time to refinance. This is because many lenders consider employment as an indicator of reliable income which demonstrates that you can service the loan. If you are between jobs or you are only employed on a casual or part-time basis, now may not be a good time to refinance.
- Refinancing costs. The cost of refinancing your home loan will largely influence your decision about whether or not now is the right time for you to switch lenders. You'll need to account for discharge fees ($150 - $350) charged by your current lender as well as upfront application fees charged by the new lender. Use our switching cost calculator to estimate your total refinancing costs. Remember to consult your accountant or financial planner to assist you with these calculations.
- Find a good broker. Speak with a mortgage broker to discuss the type of loan that will complement your borrowing needs. They will be able to review your financial and personal situation to help you reach a decision about whether now is the right time to refinance.