Is refinancing right for you?

Most home loans have a term of around 25-30 years. A lot can happen in that time to change your personal and financial situation, so it makes sense to regularly review your home loan to make sure it still suits your needs. Refinancing is one way to make sure your home loan is making the most of your money and getting you closer to being mortgage free.

What is refinancing?

Refinancing is the process of securing a new loan to pay off an existing mortgage.

Why refinance?

Refinancing your home loan can make the most of changing market conditions to save money, unlock equity, consolidate debts or access new home loan features.

Save money

Getting a better interest rate is a common reason to refinance. But getting a good deal isn’t just about interest rates – check all the costs of making the switch. Compare the overall costs and interest to what you’d pay if you stick with your current loan.

You may also be tempted to save money in the short term by lowering your monthly mortgage payments with an extended end date on a new loan. But be careful – chances are you’ll end up paying more interest over the life of the loan. Generally speaking, if you’re looking to save money, it’s better to aim to shorten or maintain your current home loan end date and lower your interest rate.

Unlock equity

Your home equity is the difference between your home’s value and the balance of your mortgage. Refinancing your home loan could give you access to that equity to invest in other property, pay for home renovations, finance your children’s education (or go on a holiday!).

Consolidate debts

If you’re looking for a more straightforward way to manage your debts, it could be a good idea to refinance your mortgage and roll all your debts into the new loan. A consolidated loan is not only simpler to manage, but could mean fewer fees and less interest.

Access new features

Home loans have changed over the last ten years, and refinancing is a great way to find a loan with the features that suit your lifestyle and financial goals. Features to look for include:

  • Flexible repayments – pay a little extra off your loan when you have the funds available to reduce the term of your loan.
  • Redraw – withdraw extra repayments if you need the cash.
  • Offsetting – offset your home loan interest rate by linking transaction or savings accounts to your mortgage.
  • Flexible rate options – switch to a fixed or variable rate, or split your loan between both options.
  • Portability – take your loan with you if you move to save fees and make life easier.

How to refinance

Check your terms and conditions

Make sure you understand exactly what fees your current lender may charge you for making the switch. You may be up for exit fees, early repayment fees or break fees if you have a fixed rate home loan.

Shop around

Compare home loan products that have the features you’re looking for with your current loan. It's not just about the interest rate: compare fees and other costs. Also look at the reputation of your new home loan provider, will they give you the customer service you deserve?

Do the math

Total all of the fees and associated costs, plus the overall interest and fees you’ll pay with your new loan. Compare this to the total interest and fees you will pay with your current loan. In addition to exit fees, early repayment fees and break fees, you may also be charged:

  • Loan application fees – to set up a new loan with a new provider.
  • Valuation fees – to have your property professionally valued.
  • Lender’s Mortgage Insurance (LMI) – to protect your new lender if you can’t make your loan payments. If your new loan is equivalent to 80% or more of your home’s value you may be required to pay LMI.
  • Mortgage registration fees – to inform the State Titles Office that you’ve changed either your lender or the type of loan.

Making it happen

Once you’ve decided to make the switch, your new lender should guide you through the application process, and take care of settlement with your current provider.

Get started on refinancing

Need help deciding whether refinancing is the best option? Talk to QBANK. Call 13 77 28.

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