REFINANCE HOME LOAN

As your personal and financial circumstances change, it’s common practice to refinance your home loan. Refinancing simply means taking out a new home loan to repay an existing one. While you can refinance with the same lender on a different product, you can also switch to a different lender altogether.

Some of the top reasons why people choose to refinance are to:

1. Get a more competitive interest rate
2. Get new (and more beneficial) loan features
3. Renovate their home
4. Invest in a property or other assets, such as shares
5. Consolidate debt into one single repayment

Pros

1. Secure a better home loan deal and reduce your repayment.

   Research shows that many Australians are not getting a good deal, paying on average 0.9% higher interest rate than what they need to be.

   Let’s look at an example of how 0.9% can make a difference.

   Billy has a $600,000 home loan over a 25-year period with a current interest rate of 3.5%. This translates to a monthly repayment of $3,004. If Billy switches to a loan with a 2.6% rate, his repayment drops down to $2,722, a savings of $282 per month. This adds up to a whopping $3,384 saving after one year – more than one monthly repayment!

2. Unlock new loan features, such as an offset account
   

   The mortgage market is continuously introducing new features on home loans to attract new business. You may be seeking additional features such as an option to split your loan or have an offset account to repay your loan faster. Or you might be interested in a package home loan that allows you to bundle your other banking products into one account.

3. Free up your home equity to renovate or invest
   

   If you’re thinking of renovating your home or investing in a second property or other assets, then refinancing will give you access to your equity to do just that. These are not the only two reasons, as you may have a personal reason for accessing large funds, such as paying for a medical expense.

Cons

• Costs of refinancing include exit fees on your existing home loan and potential application and valuation fees on your new loan.
• Lender’s Mortgage Insurance may apply to your new loan if you have less than 20% equity, even when you’ve already paid for LMI when you bought your home initially.

Is a refinancing home loan right for me?

While everyone will have a different set of circumstances and preferences when it comes to home loans, refinancing may be a good choice if you:

• Are able to secure a lower interest rate, without extending the loan period.
• Plan to stay in your current home for at least the next few years.
• Are changing your loan type with your current lender.

How to apply for a refinancing home loan?

Refinancing doesn’t always mean you need to switch to a new lender. It may be possible to negotiate a better deal with your current lender, which will simplify the process and save you on the costs of switching.

If you go down the path of switching to a new loan with a new lender, you’ll need to go through the loan application process much like when you first bought your home. Once your new loan is approved, you will trigger the process of discharging your current loan. Your current lender will confirm the date of settlement for the loan and how much you will be paid out. This amount will simply get transferred to your new loan.

Meanwhile, your new loan accounts will be set up, with offset accounts and debit/credit cards, if you chose these features on the loan.

On settlement day, the Discharge of Mortgage document will be issued by your new lender to the Land Titles Office in your state or territory. Your new loan will be set in motion, allowing you to start making your new repayments.