Why refinance a home loan?
1. Better interest rate
Getting the best interest rate possible on a home loan is a common reason people refinance. Having a lower interest rate often means you can lower your repayments, save money in the long-term and pay off your loan sooner.
It’s always a clever idea to compare home loan rates to see which one is best for your situation. And remember to look at the comparison rate too. This rate is inclusive of the interest rate and any fees or charges that are associated with the loan.
2. You want a loan that suits your needs
If you bought a home years ago with a loan, there might be new features on a different home loan that you want to access. For example, if you refinance to a new home loan, you might have nifty features to help you pay it off sooner, like linking the loan to an offset account or being able to make extra repayments.
At Great Southern Bank, our home loan features are designed to help you get savvy with your repayments, such as flexible payment options and using The Boost.
3. Your fixed rate term is ending
The right time to refinance depends on your personal situation and reasons for doing so. For some people, it’s when their home loan’s fixed term is about to end. Refinancing once your fixed rate has ended can allow you to move forward with the best flexible home loan for you.
Remember, there are some things to consider when switching from a fixed rate home loan. To avoid paying any fees for switching during the term, look out for better rates in the lead-up to the end of your term. That way, you can comfortably make the switch to a better deal once your term is up – no break fees apply.
4. Consolidating debt
Most lenders will allow you to consolidate your debts into one repayment if you’re refinancing your home loan. This simply means you can combine other loans, such as a car or personal loan, into one.
Consolidating is a clever way to stay on top of your regular repayments and manage your money. It can also reduce the amount of interest you accrue and payments you need to make overall.
5. Accessing home equity
One of the reasons people refinance their home loan is that they can access the equity from their property. This means you can withdraw the amount that you’ve paid back so far, which you can use for something else (within reason).
For example, you might use the equity in your property for a big renovation. Or you might use it to go on a once-in-a-lifetime holiday.
6. More investment opportunities
You can access the equity in your property and invest it too. For example, investing your equity into your super or using it to buy an investment property.
Do what’s best for your investment goals, and chat to a financial advisor if you need some guidance.
What should you consider when refinancing?
So, you’ve worked out why you want to refinance. Great! Now it’s time to consider other aspects of refinancing that might affect your finances, to help you feel confident in your decision.
Lenders Mortgage Insurance (LMI)
One thing to consider when refinancing is Lenders Mortgage Insurance (LMI), which you’ll have to pay if you have less than 20 per cent of equity in your home. If this is the case, then you’ll have to pay LMI when you take out the new loan. LMI will also protect the lender if you can’t keep up with your new repayments.
Fees and costs
There are some costs involved in the refinancing process, especially if you’re moving from one lender to another. You may have to pay discharge costs, loan application fees and more. But you can prepare for these costs by budgeting for them, so you’re not caught off guard during the refinancing process.
Loan features
Refinancing your home loan allows you to access new features to make paying off your loan easier. It’s important you work out how these new features will work best for you.
Some features you might consider when choosing a loan include:
- Making additional repayments.
- Choosing repayment frequency, such as monthly, fortnightly or weekly.
- Bank-specific features, like The Boost.