What is Refinancing?
Refinancing is essentially moving your loan from one lender to another, or moving from one loan product to another with the same lender. It involves paying out the original loan so you’re free to move.
Although it feels like a mortgage is a huge, long-term commitment, there are few people who wouldn’t benefit from reviewing their mortgage after 3-5 years to see if it’s still working well for them.
It may be that your personal circumstances have changed (changes in your career, additions to your family, educating your children) or it may simply be that a different loan is more suited to your lifestyle or provides more opportunities.
Refinancing to the right home loan can save you thousands of dollars in interest, or free up cash flow to help you build financial resilience or consider investing in other areas.
There are a number of reasons why you might consider refinancing:
Better Interest Rate
A lower interest rate can put money back in your pocket, improving your cashflow in the moment. However if rather than spending those savings, if you’re able to use them to pay more than the minimum repayments, you can pay your loan off sooner (and save considerably on the total amount of interest paid).
Lower fees or better features
Refinancing can help you access loans that have better features that are more suited to your personal circumstances. This might include lower account fees (saving you money), offset or redraw facilities (to help you make the most of savings while still providing access) or splitting your loan between a fixed and variable mortgage. Each of these features can help you with your financial management and progress, and should be considered when looking at any new loan.
If you have a number of outstanding debts, refinancing can help you to consolidate those debts into one loan. As home loans generally offer a lower interest rate than personal or credit card loans, this can help you save money on interest, and simplify your financial management as you only have to pay off one loan.
Access equity in your home
If you have built up equity in your home, you may want to access it to renovate or upgrade your home, or reinvest in other investment opportunities.
Things to consider before refinancing
The cost of refinancing
Refinancing isn’t free, and you will generally face fees for exiting your original mortgage (break costs), and application/valuation fees on the new loan. It’s important to balance these fees against the savings created by refinancing, to make sure it’s worthwhile. Your SW Brokerage finance specialist can advise you on the benefits and costs of refinancing.
Your Credit Rating
Your credit score will affect your loan application, and any rejected finance applications can harm your credit score. Chat to our team to get advice on the best loans for your situation.
Know your goals
Understanding your goals or the outcomes you want will help to select the best loan for you, so know whether you are chasing a better interest rate, more flexibility or access to your equity.
Know what your current lender will offer
Sometimes your best option can be to ask your current lender for a better loan offer. With our relationships with major lenders, we can often make this call on your behalf and negotiate a better deal. This is sometimes the best option rather than complete refinancing.
If you’d like to chat about the possibility of refinancing (or renegotiating your current loan), schedule a 15 minute chat with our team. We’d be happy to help.