Understanding the Concept of Refinancing and Its Importance
As Australia faces rising interest rates that force Australians to pay hundreds (if not thousands) more in monthly mortgage repayments, discussions around refinancing and cashback have increased dramatically. But what exactly is refinancing and how can it work for you?
Perhaps you have been making your monthly mortgage payments faithfully for some time and are wondering if there are ways you could be saving more each month, or you are facing large expenses and need access to your equity in your home.
Refinancing could save money or provide the capital necessary for home improvements that you’ve long been planning.
Before signing any loan documents for refinancing, here are five things you should keep in mind before diving in.
1. Why Refinance My Home Loan
Refinancing means replacing your current home loan with one with lower rates or payments, altered terms or accessing equity in your property.
Peter Bouhlas, Bankwest’s General Manager – Home Buying states: “Understanding each customer is unique when it comes to refinancing. Understanding their individual circumstances is essential when supporting them through this journey.”
These are among the main reasons people refinance:
Refinancing could reduce monthly mortgage payments with a lower interest rate or longer loan repayment term; or switch to a shorter-term loan to pay it off sooner while saving interest accrued over the life of the loan (though this would increase repayments).
Refinancing from a variable-rate mortgage to a fixed-rate one can provide stability and predictability in your repayments, while switching to an adjustable rate mortgage may offer reduced interest rates, lower repayments, and the flexibility to make additional payments (redraws).
Refinancing could provide access to the equity in your home for purposes such as home renovations, debt consolidation or to cover unexpected expenses. Refinancing may also open up access to this equity which may be put toward home renovations, debt consolidation or covering other expenses. There may also be other reasons that could prompt you to refinance, such as reduced rates:
Offset accounts attached to your home loan can help speed up its payoff timeframe and lower interest payments. Every dollar deposited in this account effectively reduces your balance and therefore your monthly interest payments, so if your current loan doesn’t already include one or multiple offset accounts this is something worth exploring further.
Ongoing Fees: Your home loan could come with charges like monthly or annual fees, redraw fees or charges associated with an offset account that increase repayments; not all loans provide this feature, however; with a Bankwest Simple Home Loan without an offset account linked, there are no ongoing fees payable.
Bankwest’s refinancing calculator can give you an initial indication if refinancing could save money and may help determine whether refinancing is right for you. Simply input your monthly repayment costs, and get an estimate.
2. What does refinancing involve?
Refinancing comes with its own set of fees and expenses, so be wary before embarking on this path.
Costs associated with refinancing can include valuation fees, exit costs and new loan establishment fees – you must take care to assess whether any potential savings from refinancing outweigh its associated expenses before proceeding with it.
Once you have decided that refinancing is right for you, the fun begins when shopping around for lenders – this can make the whole experience exciting!
Think of online mortgage dating like online dating: you’ll be selecting lenders based on their interest rates, fees and customer service – like dating sites you should do your research and read reviews before committing.
Once approved, congratulations! You are officially on your way to obtaining a new mortgage loan and can begin reaping its many advantages once all necessary paperwork has been signed and submitted.
Saving money every month or tapping your home equity, it’s satisfying knowing you made smart financial moves.
3. Can You Refinance with the Same Lender? Although in certain instances it may be possible to refinance with your current lender, typically refinancing requires switching your mortgage over to a different bank or lender.
Peter states that Bankwest offers Home Loan Health Checks to current customers in order to help ensure they still have the appropriate home loan product in their portfolio.
Reevaluating your mortgage could mean getting a more advantageous interest rate or more flexible features that help save you money and accelerate repayment of the mortgage faster.”
Shop around and compare offers from multiple lenders before making your final decision, to make sure that it suits you perfectly. Even if you plan on refinancing with your current lender, it would still be wise to research other providers to see what rates and features they provide.
Brokers have honored Bankwest with two Australian Mortgage Awards Bank of the Year awards: 2021 and 2022. If you work with a broker, have them discuss why Bankwest might be an ideal fit when refinancing.
4. Is Now an Appropriate Time to Refinance? Its Refinancing when interest rates change can still be beneficial depending on your unique financial circumstances and goals.
Even as interest rates rise, your current mortgage may still have higher than current available interest rates. Refinancing could save money in monthly mortgage payments by switching to one with lower rates.
If your home has substantial equity, refinancing may still be an effective means of tapping that equity, even as interest rates rise. This approach can be especially helpful if you plan to remain in it for an extended period.
Your home’s equity can be defined as the difference between its current market value and any outstanding mortgage loans against it. If your property has increased significantly since you originally bought it, then any accumulated equity may provide leverage should the time come to refinance it.
Refinancing into a fixed-rate mortgage could help provide stability and predictability in your monthly payments, regardless of changes to interest rates.
“Determining the optimal time and place to refinance depends entirely on individual circumstances, so finding a lender who takes the time to understand customers’ needs and expectations is paramount,” Peter states.
5. How to Determine If Refinancing Is Right For You
Seek guidance from a financial planner or mortgage broker; or reach out to Bankwest so they can assist with making more informed decisions regarding what will be the most suitable deal for you.
Refinancing can be a complex and uncertain process, and there are several considerations before making your final decision.
