Home Loan Refinancing
Your home loan is one of the biggest financial commitments that you will ever make. As life changes however, so do our needs. There are many reasons why you might consider refinancing your 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.
Refinancing is the process of replacing your existing home loan with a new one over the same property. Whilst the interest rate on your home loan is important, how you use your home loan and the way it is structured is vital. Home loans are no longer a set and forget product. We recommend they are reviewed annually. Much like a dental check-up, prevention is better than a cure. Review your home loan regularly, use the product correctly and stay financially healthy.
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. If you would like to get a better idea of your borrowing power and what your likely repayments might be, try our Borrowing Power Calculator and Loan Repayment Calculator.
Benefits of refinancing your home loan
Access a better interest rate and lower your repayments
Many people consider refinancing to access a home loan with a lower interest rate, this is because a lower interest rate means a reduced repayment. It also means you can unlock a little more spending money, or better still, pay off more principal to pay back the home loan sooner. It is a good idea to review your current home loan by comparing your current interest rates, fees and repayment amount with other lenders.
Lenders will change the interest rates they charge for many reasons, so don’t feel tempted to refinance just to chase a slightly better interest rate. It’s not advisable to choose a new lender solely for a lower interest rate without reading the fine print. There could be fees and charges involved in moving your loan to a new lender, speak to your trusted Mortgage Broker to see if refinancing will put you in a better position financially.
Access your equity to consolidate debts
One of the most common reasons borrowers decide to refinance their home loan is to consolidate their debts. Refinancing multiple debts into your home loan can help simplify your finances – especially if you’re juggling many loans, each with different repayments, fees and interest rates. The interest rate on your mortgage is likely to be much lower than the rate you'll pay on other types of debt. Using your home loan for debt consolidation could also mean a reduction in your monthly repayments. Before taking any steps to consolidate multiple debts, it is important to do your research and get a good understanding of the pros and cons of debt consolidation.
By consolidating your debts, you have the advantage of having just one regular repayment – making it easier to budget and manage your finances. Having one loan facility reduces the amount of time spent keeping tabs on multiple loan accounts and managing repayments. Depending on your personal circumstances, you might also think about switching to weekly or fortnightly repayments instead of monthly payments. This could help you to pay down your loan sooner and potentially save thousands of dollars in interest over the term of your home loan.
To make sure refinancing is worthwhile, you'll want to understand all the costs involved with each existing loan. Write down your individual repayment amounts, loan interest rates and all the fees associated with your current debts. Once you’ve calculated the combined total, check you’ll be able to borrow the amount you need by using our Borrowing Power Calculator. Be clear about why you want to refinance, ideally consolidating your debts will mean better management of your personal finances. However, if you’re looking for an easy way out of your unsecured debts, you may want to rethink your spending habits.
Access your equity for future investments
If your property has increased in value, perhaps due to a competitive real estate market or improvements you’ve made, you can access this increase in equity by drawing from your existing home loan. These funds can then be used as a deposit for an investment property. You could enjoy capital gains and the rent you receive can help pay off your mortgage or give you funds to invest further. This is only an option if your home is worth significantly more than you paid for it. Home loan lenders will also require a formal valuation before allowing you to access the equity.
Access your equity for home improvements
If your property has increased in value, perhaps due to a competitive real estate market or improvements you’ve made, you can access this increase in equity by drawing from your existing home loan. These funds can then be used to commence your home improvement project. When done properly, renovations can substantially increase the value of your property and help maximise the resale value of your property in the future. It is also important not to make improvements that exceed the value of your property, this is also known as overcapitalisation. This is only an option if your home is worth significantly more than you paid for it. Home loan lenders will also require a formal valuation before allowing you to access the equity.
Access more home loan features
Everyone’s circumstances change – it’s not just the movement of interest rates that can trigger your interest in refinancing. If you’ve outgrown your original home loan, refinancing can help bring it up to date and open up a raft of useful features that can benefit your financial position. For example, choosing a home loan with an offset sub account, can allow you to use your savings to reduce interest payable on your home loan, without paying it straight into the mortgage itself.
Many borrowers choose to use their offset sub-account in place of their everyday transaction account. This is a common method of money management, as it allows your existing funds to reduce the interest that is payable on the home loan. If you’re intending to use the sub-account to pay your home loan off faster by reducing the interest, you should consider the account more like a savings account and avoid using the funds.
Reduce the term of your home loan
By simply reducing the term of your home loan, you will not be paying as much in interest - this could save you thousands of dollars over the life of the loan. It is also possible to structure your home loan to get more out of it with an offset account. By paying your salary into an offset account, you can reduce the interest you pay on your mortgage each month. You can also pay off your home loan earlier by paying back more than the minimum repayment amount.
Why choose My Finance Consultants?
We do all of the legwork
We compare hundreds of home loan options from a wide choice of lenders, including the big banks and specialist lenders. We handle every step, having a thorough process in place to qualify you with our lender panel to find the most suitable lending options for you. We organise all of the required paperwork, order lender valuations, liaise with your real estate agent and conveyancer for a smooth transition to settlement.
We provide a convenient service
Mortgage Brokers save you the time and hassle involved in applying for a home loan - from application through to settlement. We'll meet at a time and place that best suits you, to establish your needs and preferences. We then do all the research and running around to manage every step of the application process. This saves you shopping around - as we do it all on your behalf.
We provide professional advice
We are fully trained, and accredited with every lender we represent. We are full members of the Mortgage & Finance Association of Australia and we have many years of industry experience. We also have a number of consumer protection initiatives in place to protect you - our valued clients. As mortgage professionals, we seek to guide you through the lending process to help you make better financial decisions.
We help you select the right home loan
Our first priority is helping you select the home loan that’s right for you, now and into the future. Your Mortgage Broker will save you the time and hassle associated with shopping around for a home loan, they will also guide you through the home lending process to help you make better choices with your personal finances.
We will always try to save you money
We use comprehensive software which helps us pinpoint the most suitable and competitive home loan for you. Typically, our service can help cut the current interest rate you are paying as well as reduce your fees and monthly repayments. Using a Mortgage Broker is also a great way to figure out a strategy to maximise your borrowing power.
We don’t charge you a fee for our service
There is no charge to you for our services because the lender pays us a commission once your loan has settled. We do charge a commitment fee for home loan pre-approval applications, however we will refund this to you upon settlement of your home loan. We will always aim to provide a trusted, friendly and professional mortgage broking service.
Our clients have been saying some great things about us!
Whatever your goals, a competitive home loan will get you there faster!
Whether you're a first home buyer, upgrading to your next home, getting into property investment, or wanting to refinance and pay off your existing home loan sooner, we can help you make the right decisions and stay on top - whatever your home loan needs.
We'll compare more than 40 leading banks and lenders, as well as hundreds of home loan options to find one that's right for you. No matter what kind of mortgage you're interested in, you'll enjoy expert home buying and lending advice from a Mortgage Broker you can trust.
Our industry knowledge and sophisticated mortgage software allows us to assess and compare the hundreds of home loans that are available in the marketplace, we will calculate your borrowing capacity and identify which lenders you will qualify with.
If you're ready to start your home loan journey, give our friendly team a call on 1300 381 955 or visit the Book Appointment section on our website.
FAQs
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There are very specific factors that need to be considered when determining how much a customer can borrow, such as income, employment position, the deposit saved, current living expenses and any liabilities. Our Borrowing Power Calculator can give you a rough idea of how much you may be able to borrow. For a more accurate assessment, contact your trusted Mortgage Broker so that they can go into your options and discuss your specific circumstances in more detail.
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Equity is the difference between what your home is worth and what you owe on it. For instance, a home valued at $900,000 with a $600,000 loan outstanding would have $300,000 worth of equity.
As you keep paying off your loan and as your property value increases, you’ll build equity. You can also further build equity by making larger repayments, lump sum repayments or renovating.
Equity can then be used towards purchasing an investment property, upgrading your current home, or home improvements.
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Lenders will limit the amount of equity that you can access. Typically, lenders will provide a loan to value ratio (LVR) between 80% to 90%.
This provides the lender with a buffer in the event of fluctuating property prices or interest rate rises, in case they need to repossess the property to discharge the loan.
In other words, the 10% to 20% buffer helps to protect lenders against too much risk exposure. For example, a home valued at $900,000 with a $600,000 loan would have between $120,000 to $210,000 equity available.
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If you’re interested in refinancing to save money, you should try our Mortgage Switching Calculator to check the impact of the proposed interest rate and loan term. Our Loan Repayment Calculator can also help you check the impact of extending the life of your home loan, if that is something you’re considering.
Our calculators provide an estimate only, and generally do not take into account of all fees and charges associated with the home loan. You will need to ensure that you refer to the comparison rate of any loan product you review for a clearer indication of the true cost of a home loan.
To put things into perspective, consider the scenario in which you had an interest rate of 3.30% p.a on a loan size of $500,000 for 30 years, your monthly repayments would be $2,190. If you then found a new interest rate of 2.64% p.a your monthly repayments would drop to $2,012, saving you $178 a month. That’s a saving of $2,136 a year!
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There are numerous costs involved with refinancing and switching lenders or loan 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.
Penalty fees or break costs could also apply if you’re paying off your current mortgage early, especially if you’re exiting a fixed interest rate home loan. But these may be offset by repayment savings when you switch home loans. Many lenders are also offering cash back incentives to assist prospective borrowers to make the switch.
Before you commence the refinancing process, it is important that you fully consider your financial goals and understand your current financial situation. These will need to be weighed up against the features of any lending options you’re considering. 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.
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Yes. This is one of the most common reasons why many people choose to refinance. The advantage is that you pay a much lower interest rate on a mortgage than other forms of debt - like credit cards, overdraft facilities and personal loans.
Providing you have sufficient equity in your property, you may be able to consolidate all your debt into your home loan. Every lender has different rules when it comes to debt consolidation, so it is best to get specific advice from your trusted Mortgage Broker.
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Yes. Real life happens and sometimes unexpected financial hurdles come our way. From a change in circumstances through to financial hardship, it can sometimes be tough to get your finances back on track. In the event that you have a history of bad credit, we have lenders that would be happy to look at your application on a case by case basis. Depending on the type of bad credit situation, this will determine the type of finance involved.
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Yes. When you transfer short-term debt, like personal loans and credit cards, into long-term debt like a home loan, you’re securing that debt against your home. And while your monthly repayments may go down, you’re paying them back over a longer period of time – which may mean paying more in interest in the long run. If you take this option, it is very important to make sure you maintain your repayments at their current level or you could end up paying more interest over a longer period of time.
Once you have consolidated your debt, it’s very important that you don’t start building up your personal debts again – it’s a good idea to close the accounts once they are consolidated and paid off. Refinancing your home loan to consolidate your debt is a major decision, and you will need to get the right advice about whether it’s a suitable strategy for your lifestyle and budget. Speak to your trusted Mortgage Broker who will be able to guide you through the whole process and help you make the right choice.
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Yes. There are certain risks associated with releasing the built-up equity in your home. It is important to keep in mind that investing in the property market is essentially a financial gamble – no matter how well you may calculate it. When you use your existing equity to invest, you’re taking a financial risk – you’re risking that the existing property will maintain its capital growth and that you will be able to achieve a return on your investment.
When you use existing equity to borrow more funds, the amount of the property that you effectively own is significantly reduced. If the investment performs poorly, you may be in a less than desirable position, compared to what would happen if you’d left the equity alone. That’s why it’s important to research the market thoroughly before investing and ensure that your finances and emotions can cope with the worst case scenario – should the unfortunate happen.
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No. Using the existing equity in your home is potentially a much more straight-forward process than applying for a new mortgage.
The lender already has your property as security for your existing home loan, so it’s a matter of borrowing additional funds against the value of that property, provided your existing lender can be satisfied that your application complies with its credit assessment and loan suitability criteria.
In this situation, you effectively pay your loan as normal, but have the added advantage of tapping into the value of the property for other uses. You’ll need to sign a new loan contract, often called a top up or home equity loan, but the process can be faster than applying for a new home loan with a different lender.
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Most lenders offer flexible repayment options to suit your pay cycle. You should aim for weekly or fortnightly repayments, instead of monthly. This is because you will be making more payments over the course of a year. This will mean that you can pay down your home loan sooner.