Guide to refinancing your home loan

Home loans are one of the biggest financial commitments most Australians will ever make. As life changes however, so do our needs. There are many reasons someone might refinance their home loan. Perhaps you need a bit of extra cash to finance a renovation, or you’ve seen some enticing offers advertised and feel like you might be missing out. If you think it might be time for a change, there could be an opportunity to improve your financial situation by switching.

Why do you want to refinance?

Depending on the product you choose, refinancing your home loan could help you save on mortgage repayments, access the equity accrued in your property or consolidate debts. It’s important to have a clear view of the reasons why you want to refinance your home loan before you start the process. To get you started, we’ve put together some key questions to ask yourself before refinancing your home loan.

How much can I afford to borrow?

Depending on your reason for refinancing, start by working out how much you will need. Remember you need to be able to pay it all back comfortably. Gather some information on your regular income, expenses, and how much equity you’ve got in your current property. Try our Borrowing Power Calculator. You will be able to work out whether refinancing is an option for you, your maximum borrowing capacity, and what your new repayment amount might be.

How do I refinance my home loan?

Refinancing your home loan is the process of getting a new loan to replace an existing mortgage – this could be with the same lender through moving to a new product, or switching to a new mortgage with a different lender. While some people might refinance their home loan to take advantage of a lower interest rate, others do so to consolidate their debts. Refinancing could also help you access any equity built up in a property.

Depending on your financial goals, there are potential benefits that can make refinancing seem like an enticing option. However, before you go and refinance to save a few basis points off of your existing interest rate, ensure you understand your current home loan including the comparison rate and loan features. You will also need to understand your current financial situation in full to decide if refinancing is right for you.

Can I save money over the life of my home loan?

Once you know how much you can borrow and you’ve got a few products in mind that meet your needs, use our Mortgage Switching Calculator to check the impact of the associated interest rate and loan term. Keep in mind though that these calculators provide an estimate only, and generally do not take into account of all fees and charges associated with the home loan. Ensure you refer to the comparison rate of any loan product you review for a clearer indication of the true cost of a home loan. Our Loan Repayment Calculator will also help you check the impact of extending the life of your home loan, if that is something you’re considering.

Refinance to release equity or consolidate debts

Refinancing could be used to release equity that might have been built up in your property. Depending on your overall financial situation, this could potentially be used to finance an investment property, consolidate debts or even finance some overdue home renovations. Consolidating your outstanding loans could be a good way to save on interest, as having to pay multiple debts with higher interest rates can really add up. It could also reduce the number of monthly repayments you have, which can make making repayments on time easier to manage in the future. Make sure you read all your existing loan information to make sure you factor in any break costs for the loans you’re thinking about consolidating.

What are the fees associated with refinancing?

There are costs involved with refinancing and switching lenders or products. Ranging from loan application fees with your new lender, to a discharge fee with your outgoing lender, even property valuation and risk fees - refinancing isn’t as straightforward as changing your direct debit details. Make sure you read the terms of your current loans carefully, including the break fees, interest rates and comparison rates. These need to be weighed up against the features of any refinance options you’re considering, including any cash back offers and the home loan term.

Before thinking about refinancing, fully consider your financial goals and understand your current financial situation. With the help of your trusted Mortgage Broker you can weigh up all the factors concerning the home loan you are considering refinancing to, and make an informed decision - will refinancing help you reach your future goals? Your home loan is likely to be one of the biggest financial commitments you’ll ever make, so contact your trusted Mortgage Broker to help you decide if your current home loan still works for you.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.