Seven Factors to Evaluate Before Refinancing Your Home Loan
Refinancing a home loan can be an essential way to save money, consolidate debt or secure long-term financial security. Making this move will have far reaching ramifications on both your immediate finances and those to come in the years to come.
Refinancing can bring many potential advantages, including lower interest rates, access to equity, consolidation of debt and greater stability in monthly payments.
Yet despite these obvious advantages, Greg Hooper, Newcastle Permanent Head of Customer Lending notes that people often avoid refinancing due to concerns they won’t qualify to borrow more or secure a lower rate or that the process may be lengthy.
“Refinancing can be one of the smoothest home loan processes, making the entire experience effortless,” according to experts.
“Your home loan investment will likely be one of the largest of your lifetime, so building relationships with trustworthy lenders is crucial to helping pay it off quickly.”
Here are seven key considerations before taking the leap and moving.
1. Determine Your Motivations
Understanding why you want to refinance can help you determine which loan, lender and interest rate would best meet your needs.
Are your goals to meet, create security for you and your family or save cash through lower monthly mortgage payments or shorter loan terms, or tapping into equity for other expenses?
Greg advises that refinancing is the ideal opportunity to find more competitive rates outside your current institution, while taking advantage of any cashback offers or other incentives available through refinancing.
2. Interest Rate Inevitably, rising interest rates have left many Australians looking for better deals on their home loans, especially if interest rates have altered significantly since taking out an original mortgage loan.
Refinancing gives homeowners the ability to secure lower interest rates, potentially cutting monthly mortgage payments by hundreds or even thousands over the life of the loan.
Refinancing can also give you the ability to renegotiate loan terms, such as switching from variable-rate to fixed-rate loans or choosing split rate loans – offering more stability and predictability with monthly payments.
Homeowners already operating under tight budget constraints may find this especially helpful.
3. Loan Terms
Your loan term refers to how long it will take for you to pay off your mortgage loan. Shorter loan terms often come with higher monthly payments but lower overall interest costs while longer ones usually result in lower monthly payments but increased overall costs.
Refinancing to a shorter loan term could save thousands in interest over its lifecycle.
If rising interest rates are becoming an issue for you, refinancing may offer the chance to extend the loan term and lower monthly repayments by stretching out repayment terms over longer.
Short-term repayment relief may be found here; however, long-term interest costs will increase dramatically and so it is wise to carefully consider your financial goals and the options that best meet them in terms of budget considerations.
4. Are You Wanting to Unlock Equity? Another key benefit of refinancing is tapping into any equity built up in the property – providing access to cash that could be used for home improvements, paying off debt or investing.
Greg reminds homeowners who use equity from their home to refinance that doing so will increase both their mortgage payment and total debt owed on their home.
“To ensure the additional funds can be accommodated by your new lender and that your income meets requirements,” according to Mr. Dorey, “you would also need to verify with them that there is enough income from other sources in order to qualify,” says he.
5. Additional Loan Features
Refinancing can provide the opportunity to take into account additional features you would like for your new loan, such as an offset account or the capability of making extra repayments.
Greg notes that an offset account or redraw facility can save money as it allows borrowers to keep funds on their loan and reduce interest charges by leaving it on.
“All these features can be tied directly into your internet banking, enabling real-time access when necessary.
6. Do I Have to Switch Lenders When Refinancing? Shopping around for a loan can be beneficial, but refinancing doesn’t always necessitate switching lenders.
If you are satisfied with the service of your current lender, it may be worthwhile to discuss whether they could offer more competitive rates or loan products that better align with your financial objectives.
“Convenient banking can save time, energy and money as it provides one stop-shop solutions for all of your financial needs,” states Mr. Whitehead.
Greg states that refinancing with your current lender allows you to take advantage of loyalty discounts and incentives.
7. Assess Your Lender
According to Greg, when refinancing it’s essential that you choose a lender with a good track record and do your research.
“Seek out lenders offering competitive interest rates and an established history of excellent customer service,” advises Wilson.
Read online reviews and seek recommendations from family and friends before making a purchasing decision.
Always consult a financial advisor or mortgage professional when considering refinancing to ensure you make an informed decision that meets both your current financial goals and future ones.
Disclaimer: Newcastle Permanent is part of Newcastle Greater Mutual Group Ltd, ACN 087 651 992 with an Australian Financial Services Licence/Australian credit license number 238273 and this article should only be taken as general educational material. Any opinions expressed are solely those of its contributors and information provided is current as at publication date.
