Refinancing is when you switch from one loan to another. Find out how it works here.
Jumping ship to a new home loan can be a great way to make sure your loan complements your lifestyle rather than making things harder.
When refinancing, you're simply moving from one home loan to another, and this can be with the same or a new lender. Refinancing can be when you simply move from your old home loan to a home loan with more features, or can refer to larger switches such as moving to a new lender and opting for a home loan with a shorter loan term and different interest rate types.
When you refinance, you can also save money on your regular repayments if you move to a lower interest rate.
You will have many choices when it comes to lenders and loans with low interest rates. There is a good chance that you will be able to receive a better interest rate from another lender. Use your negotiation skills to achieve a better deal with your current lender before you decide to switch. If your lender is reluctant to hand over the best interest rates, it may be time to consider switching lenders.
You can look at the table below to see what refinancing deals are currently on offer.
How much can you possibly save?
If you would like to know how much you can possibly save by refinancing, use the loan comparison calculator below. You may be surprised that you can get flexible features and a very low interest rate.
Here are some features to look out for, which will save you money:
- Flexible repayments. This allows you to pay more on your loan; especially when you find yourself with extra cash. This helps to reduce the time it takes to pay off your loan as well as reduces the money owed on the loan.
- Redraw. This allows you to withdraw your extra repayments at your discretion. Many variable loans have free redraws, usually with a minimum of $100-$1,000. Redraw usually isn't as seamless as using an offset account, as forms usually need to be completed to redraw, whereas no forms are required to withdraw from an offset account.
- Flexible rate alternatives. This allows you to switch your loan from a variable rate to a fixed rate or the reverse. You can also split your loan into two, which gives you more manageability options to move interest rates from one place to the other.
- Transferability. Also known as loan portability, this allows you to transfer your loan when you relocate to a new property; making the transition easier for you and your family.
Streamlining your debts
With debt consolidation, your high interest rate debts are combined into the one (typically lower) interest rate of a home loan. You will only have one repayment to manage each month, which can reduce your regular repayments to manageable levels.
Debt consolidation adjusts a short term debt – such as a personal loan and turns it into long term mortgage debt. Unless you set a goal to pay off the larger home loan as quickly as possible, using debt consolidation could lead to paying more interest, as interest has more time to accrue.
What about home equity and your investment goals?
Your home equity is the useable value of your home. It is calculated on the difference between the value of your home and the remaining balance on your mortgage. For example, if your home is valued at $500,000 and your remaining loan balance is $200,000, the equity in your home would then be $300,000. This is money that you can use for wealth building.
You can refinance your home to access the equity in your home for investment purposes such as buying a rental property, investing in the stock market or a managed fund. Your home loan is considered borrowed money, money used to invest with borrowings is called the process of 'gearing'. This strategy can provide you with a wide range of benefits. However, it also has some obvious risks. It is recommended that you discuss your best possible options with your financial planner and accountant.
You don't even have to use your home equity for investment purposes. You can use it for a wide variety of reasons such as pay upfront university fees for your children, for an extended overseas holiday, or home repairs and cosmetic renovations.
The related costs
There are costs to refinance. Here are several important costs that you could incur:
The cost of borrowing: Even though your current lender may not charge fees to exit your loan, your new lender will usually have upfront fees. Some of these include:
- Application fees
- Valuation fees
- Settlement fees
- Legal fees
Lender's Mortgage Insurance (LMI): If the new loan is in excess of 80% of the value of your home, your lender may charge you lender's mortgage insurance. This provides protection to the lender in the event that you are unable to meet your loan repayment obligations. You can add this to the balance of your loan, but you will have to pay interest on your premium which increases the cost.
Ongoing fees: Some loans also charge annual or monthly fees you should be mindful of.
You may have to pay exit fees to your existing lender if you are on a fixed home loan. This is known as an early repayment cost. These costs vary with each loan. Borrowers should contact their lender for a quote to exit their mortgage.
Stamp duty and associated fees
Australian states no longer tack on stamp duty to your mortgage if you add to the size of the loan.
Although, you may pay a mortgage transfer fee when refinancing. Our Stamp Duty Calculator helps you calculate how much you'll pay in transfer fees in your state.
Never sign on the dotted line of a loan contract prior to being aware of the costs associated with the loan.
Refinancing and LMI
During the life of your home loan you may find that there are better deals around, allowing you to save money or add on extra features. If this is the case then you may want to consider refinancing your home loan.
However if you are to refinance your home loan then you may find that there will be some instances in that you will have to pay LMI - usually if your Loan to Value Ratio (LVR) is more than 80% for standard home loans and 60% for low documentation loans.
If you are looking to refinance a home loan then you will have to be sure that you are able to borrow no more than 80% of the home value, because you don’t want to pay LMI on the same property twice.
If you are looking to refinance a home loan then you may be doing so for a host of reasons. Many people will look to refinance a home loan when they notice that there are other loans that are available that will allow them to save money and are better suited to their financial situation.
Questions to ask the broker
If you are thinking of using a mortgage broker to help you refinance, here are some of the questions to ask your broker.
- How will you decide whether refinancing is right for me?
- What is the process you follow when comparing and selecting loans for me?
- How long have you been a mortgage broker for?
- What additional fees could I expect to pay?
- Can I get more loan features when I refinance? Do I need them?
It is always important to weigh up your reasons to refinance or stick with your current lender
Refinancing Home Loan Comparison
Rates last updated April 27th, 2017.
- IMB Essential Home Loan - LVR <=90% (Owner Occupier)
Comparative rate increases by 0.10% | Interest rate increases by 0.10%
April 5th, 2017
- Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier, P&I)
Interest rate increases by 0.10%
April 10th, 2017
- Newcastle Permanent Building Society Fixed Rate Home Loan - 3 Year Fixed (Owner Occupier Special Rate, P&I)
Interest rate is now 3.99%
April 24th, 2017