Refinancing your home loan can be a great way to save money, reduce financial stress, or give yourself more flexibility. But how do you know if it’s the right time to refinance? Whether you’re looking for better interest rates, lower repayments, or the ability to access equity in your home, it’s important to weigh up your options before making any decisions. Here’s a simple guide to help you understand refinancing and figure out whether now is the right time for you.
What is Refinancing?
Refinancing simply means replacing your current home loan with a new one. The new loan might come from a different lender, or even your existing lender. Essentially, it gives you the chance to switch to a loan that better suits your needs, whether that’s a lower interest rate, more flexible repayment options, draw on equity, or access extra features like redraw facilities or an offset account.
Reasons to Refinance
There are a bunch of reasons why people consider refinancing. The most common include:
- Getting a Better Interest Rate: Interest rates can change over time, so if your current loan has been in place for a while, you might find that the interest rate offered for new loans today is a lot lower than your current rate. A lower interest rate means smaller monthly repayments, which can lead to significant savings over time
- Reducing Monthly Repayments: Even if interest rates haven’t dropped significantly, you might want to reduce your monthly repayments by extending the length of your loan. This can free up cash flow for other expenses or help ease financial pressure.
- Accessing Equity: If your property’s value has increased since you took out your original loan, you may have built up equity. Refinancing allows you to tap into that equity, which can be used for renovations, paying off other debts, buying a car, taking a well-earned holiday, paying school fees, or even investing in shares or another property.
- Consolidating Debt: If you have multiple debts, such as a car loan or credit cards, you may want to roll them into your home loan for simplicity and lower overall repayments.
- Debt Recycling: In order to debt recycle effectively, you’ll need a lender with specific product functionality. Click here to read more about debt recycling.
Is Now the Right Time to Refinance?
Here are some things to consider when deciding if now is the right time:
- Current Interest Rates: If interest rates are lower than when you first took out your home loan, refinancing could help you get a better deal. However, be mindful that rates may continue to fluctuate, so consider whether it’s the right time to lock in a fixed or variable rate.
- Your Financial Situation: Are you financially stable? Lenders will assess your financial situation when you refinance, including your income, credit history, spending habits and savings history. If your financial circumstances have improved, you may be eligible for a better loan. On the flip side, if your situation has weakened, it might not be the best time to refinance.
- Costs of Refinancing: Refinancing isn’t free. Rough cost to refinance is around $1,000. This is due to discharge fees at your current lender, government fees and settlement fees at the new lender. You’ll need to weigh these costs against the potential savings to ensure it’s worthwhile. Usually, my rule of thumb is that if you can “break even” and buy back that cost within 12 months, it’s worth doing.
How to Start the Refinancing Process
If you’re thinking of refinancing, the next step is to get in touch. We will assess your current loan, compare options, and guide you through the refinancing process to ensure you’re getting the right loan product for your situation.
Call us now on 02 6188 4555 or make an appointment for a free consultation.
