Home loan review: Is it time to refinance?

Borrowers have been feeling the squeeze since RBA began its rate hike spree and many have been trying to find strategies to keep themselves afloat—and refinancing might just be one of the favourites amongst Aussies.

This is all according to newly released Australian Bureau of Statistics (ABS) data that found refinancing was at an all-time high in the most recent years with it rising from $2.9 Billion in March of 2005 to $14.1 Billion in March of 2023.

So the question is, should you be refinancing your home loan now?

What is home loan refinancing?

When you refinance your home loan, you’re essentially paying off your old mortgage with the new one. In general, refinancing is used to switch your loan over to a better deal which may involve reducing the length or duration of the loan.

You’ll also find that refinanced home loans can come with particular perks such as cashback offers, low or no ongoing fees, and discounted interest rates. 

Why you might consider refinancing your home loan

With the RBA likely keeping interest rate hikes on the table in the future, many borrowers may want to consider refinancing as they could be at the edge of what they could realistically handle in terms of interest rate hikes. 

Alternatively, even if you’re in a good financial position, you might just find yourself with a home loan provider that isn’t giving you a particularly advantageous loan. This could be that the interest rate you currently have is higher than the standard or you may find yourself inundated with a load of fees and know you could get a better deal on one or both.

How refinancing your home loan could help

So, let’s say that you’ve taken out a loan where your deposit is only worth 5% of the total value of the property. Because of this, you had to pay Lenders Mortgage Insurance (LMI) which is usually paid for borrowers whose deposit is worth less than 20% than the total value of the property or a loan-to-value ratio (LVR) of more than 80%.

Now, let’s say you had only paid off 15% of the total property value. If you were to refinance at this stage, your LVR would be at 85% meaning that you would need to pay LMI again with your new loan provider. On the other hand, if you’d paid off enough of your loan so that you owned 20% or more of the property's value, then there’d be no LMI on your refinanced loan. What’s more, the lower the LVR on your refinanced loan, the lower the interest rate would likely be.

It’s for this reason, those who’ve paid off quite a lot of their loan can find themselves in a much better position by refinancing. So, if you find yourself worried about being able to make repayments in the future, it could be a good idea to consider refinancing.

Not sure which home loan provider to refinance with? At Mozo, we have comparisons on loads of refinancing providers so that you can get the home loan that works for you.