- August 28, 2020
- Posted by: Credit Hub Australia
- Category: Finance, Home Loans
Refinancing means paying out the current home loan by taking a new loan with the existing lender or a new lender. We have noticed a huge surge in refinance activity, especially in recent months. Australian homeowners are incentivised to restructure finances by the current historic low mortgage interest rates. By refinancing, they will get a lower interest rate and reduce the monthly repayments, and also along with other important loan features. However, the decision to refinance your existing home loan should be made according to your financial circumstances. There are a few key considerations to think about before applying for a home refinance.
Know the costs of refinancing
There are some costs and fees involved in refinancing, which usually costs between 3% and 6% of the total loan amount. How much these costs and charges app up to can determine whether it makes financial sense to refinance in the first place, and that’s why you should aware of all the upfront costs. First of all, if you are still on a fixed-rate term, you will need to pay break costs, and then you will need to pay application fees (it ranges from $0 to $1,000). Furthermore, there are property valuation fees, it can be waived sometimes and discharge fees. Besides, you will need to pay ongoing loyalty package fees for the account features such as redraw or offset accounts. Don’t forget there is also mortgage insurance (LMI) needs to pay if your loan to value ratio is above 80%, which can be rolled into your new loan. It’s always recommended to negotiate as some refinancing fees can be waived by the lender.
Know exactly what you want
When it comes to refinancing, you should know what do you want to get from this refinancing. It’s important to establish your goals before refinancing in order to determine if refinancing is a financially wise decision to make. You need to figure out whether your goal is to reduce the monthly repayments or you want to pay less interest over the whole loan term, or your goal is to pay off the loan as soon as possible. With the clear mind of what goal you’d like to achieve, you can seek help from a financial expert in order to choose the right lender and loan product.
Understand it takes longer to refinance now
You should keep in mind that nowadays banks take longer to refinance your loan, it happens to both major bank and as well as those smaller lenders. We recommend people who are considering refinancing to be as patient as possible. As a matter of fact, the big four banks took significantly longer to refinance loans with the average time of 54 days, while 36 days with smaller lenders (Lendi figures).
Big 4 banks v.s. Non-big 4 banks
According to the Australian Mortgage Snapshot Study, 83% of Australians choose their home loan provider based on interest rates. Due to the fierce competition in the current home loan market, lenders have all revised their offers with competitive rates. Generally speaking, those smaller have continued to demonstrate lower interest rates. However, the big 4 banks can provide more comprehensive and convenient services as majority non-big 4 banks are the online basis. So, it is strongly recommended to discuss your needs and wants with a financial specialist in order to determine what is the best choice for you.
Understand how much you can save
The main purpose of refinancing is to save money in the long term, especially in the current economic climate, it’s important to be on top of your finances and save as much as possible.
For example: On a loan of $500,000 this represents an annual saving of more than $2,000.
Try our Refinancing calculator to see how much you can save by refinancing.
The information in this post is general information. You are recommended to always seek professional advice or assistance before making any financial decisions.