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Refinance Home Loans
With interest rates always on the move and market conditions constantly shifting, the home loan you signed up for yesterday may not be the best fit for you today. That’s why it makes sense to consider refinancing your home loan to ensure you’re getting the most from your biggest investment.
Here we lay out the who, what and why of refinancing, as well as the potential pros and cons.
What is refinancing?
There’s no question that signing up for a home loan is a big commitment, but that doesn’t mean it’s set in stone. You’re free to negotiate a better deal with your current lender, or even to move your home loan to a new lender to secure a lower interest rate or more appealing terms. This process is known as refinancing.
Pros – why refinance your home loan?
There are several reasons why you might consider refinancing your home loan. These include:
Reducing your monthly repayments
By negotiating a better rate with your current lender or securing a lower interest rate with a new lender, you could potentially reduce your monthly repayments and end up with more money in your pocket. You could then use the difference to make extra repayments and pay off your mortgage faster.
Consolidating your debts
Are you paying off several different types of loans? By using your home loan to consolidate your debt you can roll your personal loan, car financing or credit card debt into your newly refinanced home loan. This way you only need to worry about making one monthly payment – usually at a lower interest rate.
Redrawing extra funds from your home loan
If your current home loan doesn’t have a redraw facility, refinancing to a home loan with a redraw option could be a way to access any extra funds you’ve deposited into your home loan. Redrawing could help you complete those much-needed renovations or fund a large purchase.
Getting greater flexibility
Different lenders offer many different types of home loans, all with a range of product features. Refinancing offers the opportunity to change the term of your loan, switch to a fixed or variable interest rate and add extra features, such as offset accounts or redraw facilities.
Who should refinance their home loan?
As market conditions rapidly shift, lenders will compete for your business, so they’re constantly launching new home loan products that may be a better fit for you.
That means everyone with a home loan should do a home loan health check on a regular basis. This is particularly true if you’re interested in consolidating your debts or accessing equity to fund a new purchase.
Reassess your home loan at least once every 12 months and compare your current deal with the latest offerings from other lenders to be confident your needs are being met.
For tips on how to find a home loan that’s suited to your needs, check out our guide to choosing the right home loan.
What are the potential disadvantages to refinancing?
There are a few potential cons to the process. It’s worth considering:
There may be additional application and set-up fees for your new loan, as well as early exit or break fees for exiting your current loan.
The return of Lenders Mortgage Insurance
You may have to pay Lenders Mortgage Insurance (LMI) to your new lender even if you’ve already paid it to your existing lender.
But don’t let the thought of fees put you off refinancing altogether. Depending on how long you have remaining on your home loan and how much lower your new interest rate is, you may find that the long-term savings more than make up for the upfront costs.