With interest rates now sitting at record lows, you might be wondering if refinancing is right for you. But, before you make any decisions, it’s important to know what refinancing is, how it works and how it might impact your bottom line.
Q: What is refinancing?
A: Refinancing is the replacement of an existing home loan or investment loan with another home loan or investment loan under different terms – referred to as ‘switching'.
Q: Why do people refinance?
A: On average, Australians refinance their home loan once every three to five years, usually because they want to:
- reduce their current home loan repayments
- consolidate credit cards, car loans and personal loans
- use equity to purchase investment property
- change lenders due to poor service
Q: How much will refinancing cost me?
A: Refinancing costs will vary from loan to loan, but generally may include:
- Valuation and application fees
- Exit fees – which may apply when you pay out a loan early or break your fixed term
- Lenders Mortgage Insurance (LMI) – will apply if you borrow 80% or more of your home's value
- Government fees and charges
Q: Will I save on interest when I refinance?
A: One of the biggest reasons for refinancing your mortgage is to take advantage of lower interest rates. Your mortgage broker can compare hundreds of loans to find one that is not only competitive, but is also better suited to your unique financial needs. However, you'll need to consider if what you save on interest is greater than what it may cost to refinance.
Q: How can I be sure that I'm getting the best deal?
A: When refinancing, you'll have to choose a lender, and the interest rates and fees offered by each lender can vary quite widely. When deciding whether to refinance, it's important to consider the total cost of refinancing by taking both interest and fees into account.
Q: How do I refinance my home loan?
A: Your mortgage broker will help you put together an application for the new lender you have chosen. You will need to provide your ID, Income & Liability documents, council rates and bank statements.