Refinancing involves taking out a new mortgage to replace your current mortgage, often allowing you to renegotiate the terms of the loan. With an increasing refinancing trend across Australia, now is the best time to get up to date with the latest information!
Refinancing means replacing your existing home loan with a new one, either with the same lender or a different one.
Refinancing can help you take advantage of additional features and lower interest rates. It can also allow you to adjust the terms of your loan to better suit your needs, such as extending the term or moving from a fixed rate to an adjustable rate.
It’s often a good idea to consider refinancing your home loan if your original circumstances have changed. Some of the reasons why you might decide to refinance your home loan include:
Head over to our guide on when to refinance your home loan for more information on the best time to considering switching your mortgage.
You will need to factor in break costs and admin fees as well as your current mortgage repayments and interest rate in order to calculate how much you could save. A refinance calculator is a great tool to use for this.
For example, Ray currently has a home loan with a balance of $500,000 and a 20 year term. His existing interest rate is 5% p.a. and he has no offset account or redraw facility. He makes monthly repayments of $3,300.
If he switches to a home loan that offers him an interest rate of 4.5% p.a., his new monthly repayment would be $3,170, assuming that the term remains the same.
If his exit fees add up to $1000, he wouldn’t begin to see the benefits of this switch until after the first 8 months. However, if the interest rate remained the same over the lifetime of the loan, he would save over $30,000.
Refinancing is usually a simpler process than taking out the initial mortgage, but it also depends on the type of refinancing. There are three main types of mortgage refinancing that you can apply for:
This is the most common type, usually done to change the interest rate or loan term. This type of home loan refinance is also sometimes used to convert the loan from a variable rate to a fixed rate.
A cash-out refinance loan is where you take out a loan larger than your existing loan by leveraging the equity you have in your property. You would then be able to withdraw the difference in cash to spend however you choose.
You would normally only choose this type of refinance if you’ve just gained access to a large amount of cash and you want to use it to reduce your overall mortgage balance. This can be useful in circumstances where you’re behind on your mortgage repayments or you want to lower your credit rating.
Refinancing your home loan is often less complicated than taking out the initial mortgage, but will still take 30-45 days depending on your situation. Refinancing can be easy if you prepare all the necessary documents and communicate effectively with your lender or financial institution.
For more information, check out our 8-step guide on how to refinance your home loan.
Before you make the decision to refinance, it’s important to consider the potential benefits and drawbacks. Refinancing can be a great move if the timing is right, but you could also end up paying more than you’d planned.
Refinancing can be a good financial tool for reducing your mortgage payment, shortening the term of your loan or bringing debt under control.
However, you should carefully assess how much money you’ll save by refinancing and also think about how long you plan to live in the house. If you don’t play to stay for long, the cost of refinancing may not be worth the long-term savings. There are a range of considerations that you will have to take into account, especially when considering alternative types of home loans. For instance, a SMSF loan refinance can differ from your standard process.
Joust allows you to put your mortgage on the market using the Live Auction feature, so that banks and lenders can bid for your home loan. This helps you get the best possible deal without using a mortgage broker because lenders will be encouraged to offer low interest rates to entice you to select them as the winner.
Refinancing can be a great idea if it saves you money or improves your financial circumstances, but it depends on your situation. It’s important to do thorough research before refinancing your home loan to make sure that it will benefit you.
Refinancing usually involves changing the terms of your loan or switching from an existing lender to a new lender, whereas taking out a new loan is a different process.
This will depend on the type of refinance. If you take out a cash-out refinance loan, you will essentially be exchanging some or all of the equity in your home for cash.However, if you are taking out a rate-and-term refinance loan, you will not lose any of the equity you have in your home.
Refinancing does have the potential to hurt your credit score. Mortgage applications, credit checks and the closing of the previous loan are all required when you refinance and can all cause your credit score to drop. Often, this will only be temporary, but it’s also one of the reasons why it’s important to make sure that you refinance at the right time for you.