Reasons to refinance your home loan
Choosing the right time to refinance can be tricky. With interest rates famously low, and not looking like they’re going to move up any time soon, many Australians with mortgages have already decided that the time to refinance is right now.
The old-fashioned approach to a home loan was to ride it out for the entire life of the loan. But that was back when the ‘Big Four’ lenders were pretty much the only four. Much has changed on the past couple of decades, with one notable change being that the average duration of a home loan is now around five years. Borrowers are likely to change lenders several times over the life of their loan.
Here are some of the main reasons people are choosing to refinance in greater numbers. If any of these circumstances apply to you, contact us to see whether refinancing could be the right option for you.
1. Pay lower rates
While the lure of low rates is hard to resist, be careful about simply chasing the lowest rate in the market. There are lots of thigs to consider, including exit fees, annual fees, and loan features such as offset accounts that can save you thousands of dollars over the life of a loan.
Lenders are increasingly offering incentives, including cash, limited-time reduced rates and even extra frequent flyer points. These can all be terrific, and should be added into your thinking. However a $1000 cash bonus isn’t really worth much of you’re paying $400 a year in fees…
Taking everything into account, we can help you find a loan that works to your financial advantage over the short and longer term.
2. A more flexible loan
Basic home loans usually offer lower interest rates, but it’s important to understand what features you’re missing out on, and whether they’d be useful in your circumstances. For some, refinancing is a way to unlock more features and more flexibility.
Many people find it useful to make additional payments on their loan from time to time. Perhaps you inherit money or receive a tax return – putting extra on your loan can knock several years and significant interest costs off the life of the loan. With most fixed-interest loans, however, extra payments aren’t possible, or attract fees.
Making extra payments can also mean that you’re able to access that money later – known as redraw. If you’re lucky enough to be able to make extra payments, redraw is a comforting back-up in case of emergencies. Or just to fund a holiday!
Over the past 18 months, Australians – and Melburnians in particular – have used the COVID-19 lockdowns as an opportunity to renovate. If we’re stuck at home, we might as well make it as comfortable as possible! During major renovations, it’s possible to refinance and take out a construction loan. These loans are typically interest-only for the period of construction. Once the reno is done, it might make sense to refinance your home loan again so that you consolidate the total amount you owe into a loan that minimises your interest bill.
4. Turn equity into cash
Almost anyone in Melbourne with a property loan that’s more than a few years old will have seen the value of their property increase. The difference between the amount you owe and the value of your property is known as equity. The older your loan, the more equity you’re likely to have in your property. It’s possible to refinance, increasing the amount of your loan, but also accessing additional cash.
This isn’t something to do lightly. Increasing your mortgage has long-term impacts. In some circumstances, hovever, refinancing to access funds makes sense.
5. Avoid defaulting on your loan
Some people find they have borrowed more than they can comfortably repay, and they’re in danger of defaulting. There’s no shame in that; things don’t always go to plan. Talk to us about whether refinancing can help take some financial pressure off.
Avoid the hassle
Perhaps the biggest impediment to refinancing is the hassle. Changing lenders means updating your work payroll, activating new credit cards and changing all of those automatic bill payments. And while there’s no way around having to make lots of little adjustments, at least we can help with the paperwork.
At Mortgage Broker Melbourne, we’ll find a loan that suits and help you negotiate the best possible deal. We’ll than handle the paperwork. In many cases, all you’ll need to do is sign on the dotted line, and we’ll arrange the rest.
Contact us to find out if refinancing now might work to your advantage.
Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!