When is the best time to refinance your home loan?
As a homeowner with a home loan, chances are you have heard of the term ‘refinancing’. Refinancing involves reviewing your current mortgage, and potentially swapping your loan to another lender who can better meet your current needs, wants and circumstances.
The benefits of Refinancing:
- It can allow you to consolidate your debts or pay down your home loan more quickly. Therefore, saving in the interest paid over the years.
- Another common reason borrowers look to refinance is so that they can access the equity in the property – the amount you would get from selling your home after settling any associated loans, such as a home loan on that property, and any other costs associated with the sale. Depending on that amount, you may be able to access the equity in the property without having to sell it, for example, to make home renovations, purchase a car or assist in the purchase of an investment property.
- With such low-interest rates currently available, borrowers may be able to save money and knock years off their loan by swapping to a better interest rate.
However, refinancing is not suited to everyone. There are many different factors you will need to consider when thinking about refinancing your loan. Before you initiate an application to refinance, your broker will need to assess your needs and objectives as well as your current financial situation.
So how will you know that refinancing is the right option for you?
The first step is to speak to a professional, such as a mortgage broker, about your needs and whether a different loan structure or other change to your loan is the right way to go, particularly if you have more than one property and loan.
Are you looking to pay less interest?
Some people are savvy researchers and will want to take advantage of a lower interest rate from another lender. Securing a lower rate means that the majority of your repayments will be attributed to paying down the capital of your loan and not so much in the interest being charged by the lender, which will automatically assist in building equity faster.
While saving money is often one of the biggest benefits of refinancing, it may not be as straightforward as that and careful consideration is required.
At this point, the broker will need to find out about your existing loan, repayments, and current loan structure.
The current value of the property is also taken into consideration, so your broker will have access to current data that will indicate what your property is likely to be worth.
Once it has been established that a refinance is beneficial for you, your financial situation including your income, any other current debts and assets will need to be discussed.
Sometimes it is not worth it if it is only going to save a couple of hundred dollars a year, particularly when you take into consideration the exit fees from your current lender and application fees involved with the new lender.
In some cases, the mortgage broker can tell you if getting a lower interest rate from your current lender can be achieved without refinancing.
Points of consideration
Something to consider when refinancing your home loan is that you may need to pay Lender’s Mortgage Insurance (LMI)* to your new lender. Of course, this is dependent on the value of the property and loan balance which will be addressed with your Broker earlier in the process, but your Broker will present all the best options for you.
Working with a broker rather than going straight to a lender has advantages. Our Broker’s have access to loan options from a wide range of over 40 lenders, and if there is a better solution for you, they are usually able to access it.
Have your circumstances changed?
If you had a recent major life change such as loss of income, change in employment or change in marital status, you might be looking to refinance.
Your broker can also help you look at alternate options to consolidate your personal loans and credit cards into the one loan. **
This could help you in lowering your monthly repayments, make budgeting easier, and reduce the number of commitments you may have. The key is to speak to a Pacific Finance Accredited Mortgage Broker who has the expertise to help you through the refinance application process.
*LMI protects the lender against potential loss.
** Subject to a financial review.