Your home loan is a long term financial commitment which can span anywhere from 25 to 30 years. But that doesn’t mean you’re stuck with the same deal that whole time! Refinancing your home loan is the perfect way to score an offer that will save you money and suit your current budget better.
We’ve answered some of the most frequently asked home loan refinance questions below, to help get you started on the path to switching.
Why would I refinance my home loan?
There are heaps of good reasons to refinance your home loan, from saving money to reworking your household budget. Some of the main ones include:
To save with lower repayments. One of the big perks of refinancing a home loan is that you can potentially save thousands of dollars by switching to a lower interest rate. Better in your pocket than the bank’s, right?
To pay your loan off faster. Another big benefit of refinancing is that, by switching to a lower interest rate but keeping up the same repayments you make now, you can shave years off your loan term. This will not only mean you’re mortgage free sooner, but will also save you on interest.
To access flexible features. When you were wading into the world of home loans for the first time, you might have decided to keep things simple with a basic no-frills option. But now that you’ve had that loan for a few years (or a decade) you might want to refinance to an option with a few more features, like an offset account, extra repayments or a redraw facility.
Because your LVR has changed. If you picked up your first home loan with a small deposit of 10% or even 5%, then you probably didn’t get the absolute best interest rate around, since the best offers are reserved for borrowers with LVRs of 80% or below. Once you’ve paid off some of your loan and your LVR decreases, you may be able to snag a better interest rate.
Because your financial situation has changed. Chances are, some things have changed since you first signed up for your home loan. Maybe you got a new job, or you had kids, or you paid off other debts that were dragging you down. All these things can mean that a different home loan offer will now suit you better.
How much could I save by refinancing my home loan?
Okay, we know the main reason you’re thinking about refinancing is probably because of the savings on offer - but just how much cash can you put back in your pocket by switching to a better home loan deal?
That will depend on your loan amount, how long you have left on your loan term and what interest rate you’re switching to and from. But to give you an idea, let’s look at an example.
Say you have $400,000 left on your home loan and you’re 10 years into a 30 year loan with an interest rate of 4.20%. If you stick with this loan, your monthly repayments would be $1,956, and over the next 20 years, you’d pay $152,207 in interest.
Now, imagine you refinance that loan to an offer with 3.60% interest. Your monthly repayments would drop to $1,819, and over the next 20 years, you’d pay $125,650. That’s a saving of $26,557. Imagine the luxury holiday you could take with that!
Is there any reason why I wouldn’t refinance?
Refinancing your home loan is not always the best idea. For starters, you might already be on the best home loan offer around, in which case, its unnecessary. But even if you do spy a lower rate when comparing home loans, refinancing may not be a good move, if you:
Are in the middle of a fixed term. Fixed rate home loans often come with break fees attached. This means, if you pay off or refinance your loan before the fixed period ends, you might get hit with a hefty fee. In this case, you’ll need to weigh up the benefits of refinancing against the cost of the break fee to decide on the right course of action.
Still have an LVR above 80%. If you took out a home loan with a deposit of less than 20%, you probably remember the sting of having to pay Lender’s Mortgage Insurance. Well, unfortunately, refinancing your home loan when you still need to borrow more than 80% of your home’s value will mean you’ll have to pay Lender’s Mortgage Insurance all over again.
How long does it take to refinance my home loan?
That’s a tricky question. At first, when you’re researching your refinance home loan options and getting all your necessary documentation together, you’re entirely in charge of how long it takes - you might get it all done in an afternoon, or you could do it over a week or two.
Once you’ve applied for the refinancing loan, things are in the bank’s hands and there’s two options: fast track refinancing, or standard refinancing.
If you want to get your refinancing done and dusted, then you can ask your new lender about fast refinancing, which can take as little as three days. This essentially means that your new lender will pay out your loan before receiving the title to your home, speeding the process along.
Keep in mind, your new lender may require you to pay title insurance, in case there are problems when transferring the title after they have paid out your loan.
The other option is to stick to the standard refinancing process, which generally takes around 3-4 weeks. In this process, you apply to refinance your home loan with the new lender, then they will contact your old lender to transfer your debt over.
It takes a bit longer to refinance this way, but the good thing is that you won’t need to pay title insurance.
What features should I look for when I refinance?
While you’re refinancing your home loan, why not score some handy features to help you save even more? There are tonnes of different home loans, ranging from basic options to full feature packages with all the bells and whistles, so you’re sure to find an option that has the features you want.
A couple to keep an eye out for include:
- Free extra repayments. Being able to make extra repayments and pour every spare dollar into paying off your home loan will not only mean you’re debt free quicker, but it can also cut down on the amount of interest you pay.
- Redraw facility. This is a nice feature to have, just in case you go a bit overboard with those extra repayments, and then find yourself needing the cash for an unexpected bill. Remember that even if your loan comes with a redraw facility, there may be a minimum amount you need to redraw at a time, or there could be a fee. Look for an option that offers free redraw!
- Offset account. A super easy way to cut down on the amount of interest you pay on your home loan is to stick your savings in an offset account. This effectively lowers the principal amount you pay interest on every single day - without you lifting a finger.
What fees should I watch out for when I refinance my home loan?
One of the barriers to refinancing is that there are a number of fees that may apply when you do so. First of all, when you close out your old loan, you might be hit with a discharge or early break fee.
Then the new loan may include all the usual fees, such as application fee, valuation fee or yearly service fee. You should keep these in mind when deciding to refinance, and make sure the cost of fees doesn’t outweigh the benefit of making a switch.
Ok, I’m ready to refinance. Where do I start?
If you’re ready to take the plunge and refinance your mortgage to a better deal, you can start by comparing your home loan options in the table above. When you find the perfect fit, just click the blue ‘go to site’ button to go through to the lender’s website to get the ball rolling and apply to refinance.
Or you could try out our Switch and Save calculator, which will not only show you a bunch of refinancing home loan options, but also how much you could save by making a change.