Refinancing is replacing your existing mortgage with a new mortgage. You can refinance with your current lender or go to a new lender. It may be a good way to save you some money, but only if you take into consideration the actual cost of refinancing. You should always seek advice from a professional adviser before making major financial decisions like refinancing.
What are the benefits of refinancing?
The most common reason for people to refinance is in search of a lower interest rate on their mortgage, but there may also be other motives. You may consider refinancing for the following reasons:
Interest rates may be lower
When you refinance the balance of your loan at a lower rate, you can reduce your monthly repayments and the total cost of your loan.
Seeking a fixed rate
If your current loan has a variable interest rate, or if your fixed rate term is ending, you may want to refinance to a fixed rate or partially fixed rate home loan to lock in a set rate on your monthly interest repayments for a set period.
Pay off your home loan faster
Changing from a 30-year loan to a 20-year loan will raise your monthly payment, but because interest is compounded, could save you thousands of dollars over the long term. If you can afford the higher monthly repayments, switching to a shorter loan term might work for you.
Extra funds for something else
If you have equity in your home, you can leverage it to pay for home improvements, pay off other debt or accomplish other goals.
Improved financial situation
If your credit score has increased or your loan-to-value ratio (LVR) has decreased, you might find a more competitive home loan.
Consolidation of debt
If you are experiencing financial difficulty a consolidation of debt may relieve the pressure. It is important to seek professional advice on how you can manage your financial hardship.
Cash out for future investment
You may be looking to get a deposit ready to buy another property to build your wealth.
Things to consider
The total costs of refinancing
There are many upfront fees and charges to think about including establishment fees, legal fees, stamp duty and ongoing fees, which may apply. If your home loan is reasonably small, it may take some time before the savings of a lower interest rate actually make up for the cost of refinancing.
Remember that the interest rate is usually variable
Make sure you look at the ongoing interest rate, not just the honeymoon period if one applies.
Check the new loan has all the features you need
Which features do you want for your home loan? Check out our financial jargon article on page 16 to learn about redraw facilities, offset accounts and additional repayments.
Explore all your options
Make sure you shop around and take professional advice to find out which home loan is the most appropriate option for your individual circumstances before making the decision to refinance.
This publication has been produced by Helia Group Limited (’Helia’). This publication may include content which is owned by third parties (’third party content owners’) and that has been provided to Helia for publication. Opinions expressed in this publication are of the writer or contributor and do not necessarily reflect the view of Helia or its affiliates. This publication covers a variety of topics including property, insurance and other financial products and services. Although some of the information involves tax, stamp duty, legal, accounting, financial or similar issues, Helia, its affiliates and the third-party content owners (as to their materials only) (‘we’) are not in the business of offering such advice and nothing in this publication constitutes a personal recommendation or advice. You must consult with your own professional advisers to examine the legal, tax, accounting or investment aspects of any information presented in this publication and how they may affect your particular situation.
The information also does not contain all of the applicable terms, conditions, limitations or exclusions of the products or services described. We expressly disclaim all responsibility and liability for any action or inaction by you in reliance or partial reliance on any material, information, opinion or advice in this publication or referred to in this publication. The information is current as at the date of publication but may change without notice. We are under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. We do not take any responsibility for any reliance on the information contained in this publication or for its reliability, accuracy or completeness. Nothing in this publication is an offer by or on behalf of Helia or its affiliates to sell, or solicit an offer to buy, any security or financial product.
COPYRIGHT NOTICE All copyright in the contents of this publication belong to Helia, its affiliates and licensors or to third party content owners. All rights are reserved. To the extent permitted by law, no part of any materials in this publication may be reproduced or transmitted in any form without the express written consent of Helia.
