When is the best time to refinance your home loan?

As a homeowner with a mortgage, chances are you might have heard of the term ‘refinancing’. Refinancing involves reviewing your current mortgage, and potentially swapping your loan to another lender who can better meet your current needs, want and circumstances.

Refinancing can also allow you to consolidate your high-interest debts or pay down your mortgage more quickly when switching from high-interest product to low-interest product.

Another common reason for borrowers to look to refinance is so that they can access their current property equity for home improvements like renovations or use as a deposit for buying an investment property.

However, refinancing is not always suited to everyone. There are many different factors you need to consider when thinking about refinancing a loan. Before you initiate an application to refinance, your broker will need to assess your needs and objectives as well as your current financial situation.

So how will you know that refinancing is the right option for you?

The first step is to speak to a professional, such as a mortgage broker, about your needs and whether you can afford a different loan structure or other change to your mortgage, particularly if you have more than one property.

Some people are savvy researchers and will want to take advantage of a lower interest rate from another lender should that be available to reduce repayments. If you aim for a lower interest rate, this could potentially save you much money in the long term.

While saving money is often one of the most significant benefits of refinancing, it may not be as straightforward as that, and careful consideration is required.

At this point, the broker will need to find out about your existing loan, repayments and current loan structure. Your mortgage broker will also need to find out more about your current financial situation, including your income, any other existing debts and about any assets you own.

The current value of the property is also taken into consideration, so your broker will have access to current data that will indicate what your property is likely to be worth.

The broker will then review the various loan options and figure out whether it’s worth it for you to refinance. Sometimes it’s not worth it if it’s only going to save a couple of hundred dollars a year, particularly when you take into consideration the exit and application fees involved. However, if it’s going to save upward of $1,000 a year, refinancing might be a sensible approach.

In some cases, the mortgage broker can tell you if getting a lower interest rate from your current lender can be achieved without refinancing.

Do you want to change your loan type? One of the risks of refinancing your home loan is that you may need to pay Lender’s Mortgage Insurance (LMI)* to your new lender again if your current loan LVR is more than 80%. In that case, please check with your mortgage broker to find out whether the money that you are saving with the new loan is higher than the cost that you are going to pay, else it may not be worth refinancing.

If you do decide to go down the refinancing path, working with a broker rather than going straight to a lender has advantages. A broker generally has access to loan options from a range of different lenders (on average 34 lenders), and if there’s a better opportunity for you, they’re usually able to access it.

It is important to consider that when you take up a new home loan, it can incur exit fees and may not have all the features your existing home loan has.

Have your circumstances changed? If you had a recent significant life change such as a because of a loss of income or a change in marital status, you might be looking to refinance.

If you want to refinance to lower lending costs to help you manage your monthly repayments, speak to your mortgage broker who can negotiate with your current lender for a rate suitable to your current situation.

Please speak to Kevin Poh on 0415820016. He will help you look at alternate options to consolidate your personal loans and credit cards into the one loan. This could help you in lowering your monthly repayments or help you keep your repayments on time and even save you interest in the long term. He also has access to many lenders and their products and helps you through the finance application process. *LMI protects the lender against potential loss.