With many Australians coming off fixed rates very soon and interest rates still on the rise, refinancing has become a very hot topic. Our award-winning mortgage broker Priya Ravi and our very own Marissa Schulze are here to break it all down for you!
Why should you refinance your home loan?
There are various reasons why our clients choose to refinance their loans. Some of the most common ones include:
- Saving interest costs in the long run
- Coming off a fixed rate once the fixed-rate period of your loan is set to expire
- Changing the structure of your loan
- Accessing more equity to purchase a new property or
- Releasing equity
Refinancing your loan can come with potential benefits that include saving you money on repayments, re-defining the structure of your loan, and if you are currently finding your borrowing capacity is “maxed-out” or “capped” with a particular bank or lender, refinancing can also open up the opportunity to explore new lenders who might be more lenient with policies or have deals on offer that are better suited to your needs.
Another reason why refinancing your home loan or existing loan might be attractive is making the most of existing cashback offers. Although cashback offers can be very attractive short-term, it is very important to keep in mind that they should not be the sole reason why you consider refinancing. Cashbacks might often be very rewarding at the moment of settlement, but might not end up being the wisest decision for you long-term if variables including refinancing costs, interest rates and the structure of your loan are not well-suited to your needs.
Does refinancing save you money?
As mentioned previously, one of the main reasons why our clients choose to refinance their home loans and existing loans is to save. But does refinancing really save you money?
The exact answer to that question will depend on the existing conditions of your loan, and the refinancing offer you are looking to consider. Though it might be tempting to switch purely considering your new loan’s interest rate, other factors like exit and application fees, potential loan term (how long you aim to keep this loan for), and even future financial goals, are important to keep in mind.
Our best advice to ensure this process will actually save you money is to reach out to your trusted Rise High broker to find out. As your dedicated mortgage advisors, our team will always be able to make the calculations for you and help find out what the long-term impacts of a specific decision might be on your finances.
Having a well-rounded understanding of the potential outcomes is essential for you to make an informed decision.
What does the refinancing process look like?
The refinancing process really begins with an assessment of your financial position.
This includes having a look at your borrowing capacity, valuation of your property, and potential existing equity.
Your dedicated Rise High mortgage broker will be there to guide and support you in making all relevant calculations (interest rates, potential repayments, affordability of repayments), generating lender comparisons, looking into budgeting, assessing your financial situation with your existing lender, looking into the potential benefits of fixing your loan or keeping it variable (if tis is an option available to you), and helping you understand what your future financial position might look like.
Refinancing your loan really goes beyond finding a good rate. In exploring all options offered by our extensive panel of lenders (over 70 lenders!), we will help you consider:
- loan benefits
- loan costs
- packages and other fees
to really provide you with the insights you need to make the best decision.
Our services are fee-free to you! So really, there is nothing to lose. As your trusted mortgage brokers, it is our duty and mission to always put your best interests first and our advice is always tailored to supporting you as our valued clients.
When should you refinance your loan?
One of the best times to consider refinancing is after you have been with your lender for a significant amount of time.
Often times, lenders will reward new clients by offering great introductory rates and incentives. As time goes by, this incentives are not necessarily a big part of their customer retention programs. If this is the case and your lender is not providing great incentives for you to stay, keeping an open mind and exploring what other lenders might have to offer could be a great option.
Looking into renovating your existing home, or wanting to release some equity to fund a new project or purchase might also be a great opportunity to consider refinancing.
Although finding more competitive rates with other lenders might trigger you to want to refinance, it is important to understand the difference between reviewing your loan and refinancing your loan.
Reviewing vs. Refinancing
If you currently have an existing loan that is 12 months or older, chances are your might find better options available on the market.
Reviewing your loan basically refers to conducting a “health check” every 12 months on your existing loan to ensure it still suits your needs, supports your goals and offers a competitive rate. At Rise High, we have a team exclusively dedicated to perform this health-checks on your behalf, negotiating with your existing lender as needed to ensure you are always getting the best rate and saving as much as possible on your existing loan.
Refinancing, on the other hand, considers other options and offers in the market (with your existing lender as well as other lenders). It includes looking at your loan’s structure, and loan product to consider a completely new one.
Refinancing can often come with downsides and implications, as it can affect your credit score. Reviewing, on the other hand, doesn’t necessarily impact your credit score.
Your credit score
When thinking about refinancing your loan it is important for you to understand that refinancing IS considered a credit enquiry.
Credit enquiries show up on your credit file, and affect an important score known as your “credit score”.
Your credit score is one key factor lenders use to assess and approve any credit application (whether it be for a loan or any other sort of finance or credit). As a result, being very diligent when it comes to refinancing is VERY important to keep your credit score healthy.
On that note, if you have been looking for credit options (whether it be for personal loans or other forms of finance), it is always important to ensure these are not getting lodged into your credit file as enquiries, as this might affect your score even if you do not actually proceed with applying and obtaining the finance you were enquiring for.
Considering the lenders costs is a great start. Unfortunately, it is not the only expense you need to factor in when looking to refinance your home loan.
Other costs you might want to keep front of mind when refinancing include:
– Exit fees: Discharge fees and Land titles office fees (government tax cost) payable when leaving your existing lender which can cost around $700 and $800
– New lending application fees such as settlement fees and other costs
Your long-term goals
Before making a decision it is very important to think about your future. What other goals, dreams and aspirations could you have long-term and how could these be impacted by your decision to refinance today?
Thinking about your future goals also includes considering whether the new lender you are considering might be good at retaining you. Will they be looking to continuously offer their best rates to you? Is this introductory offer just an initial hook that might not support you long-term? What are their service levels and how are they at responding at your application?
All of these considerations are key at determining whether this new lender, loan product or loan structure is worth the switch!
One final thought…
Working closely with your mortgage broker means you will have access to the right tools and expert advice to make the right decisions.
As your brokers we will always make sure to provide the right advice and ensure you are moving for the right reasons! Since we work for you (not the banks), it is our greatest pride to always put your best interests first.
Are looking for specific advice based on your current circumstances and the state of the lending market? Our award-winning brokers are always happy to help! Get in touch with our lovely team today!