Chances are you’ve heard refinancing described as ‘switching’ or ‘transferring’ your loan to a new lender. To refinance you’re essentially paying off the existing loan and creating a brand new loan at another institution. Creating a new loan means you can look at changing things like the term, interest rate, features, product type and amount borrowed against your property.
Generally, refinancing is a personal decision that is often motivated by a change in your financial circumstances. Maybe you’d like to maximise your money through features like an offset account or redraw facility, or you might want to change your loan term and get a better interest rate to reduce your monthly repayments.
Often, refinancing can be a smart way to shave years off a home loan and better manage money and/or debts. Here are some common reasons for refinancing:
1. To get better features. Refinancing may be a good option if want to upgrade to a home loan product that offers a redraw facility, a 100% interest offset account, possibly even discounts or fee waivers that all help to pay off your loan sooner.
2. To take advantage of a competitive market. Home loan offers change all the time and refinancing can be a smart way to secure a more competitive rate. Often discounted rates are for new loans only, so refinancing your loan to another lender may give you access to exclusive deals.
3. To utilise your equity. If you have built up equity by paying down your loan or increasing the value of your property, you may be able to find a better deal. Lenders often give lower interest rates to customers with more equity.
4. Your circumstances may have changed. Have you reviewed your financial situation and the market lately? Perhaps you have a fixed rate loan that is due to roll? Take the opportunity to assess your financial needs. This may include re-fixing your loan, taking up a variable option or splitting your loan. Refinancing gives you the opportunity to change your loan to suit your current circumstances.
5. To borrow more money. If you need money to renovate your home or upgrade your car, you could refinance your mortgage to another institution and borrow additional funds against your property.
6. To consolidate debt. Home loan interest rates are typically much lower than those you’ll pay on a credit card or personal loan, so consolidating these could be an easy way to reduce the interest you owe. If you have several debts, with some charging higher interest rates than others, you may be able to consolidate those debts within your mortgage by refinancing and borrowing additional funds.
How do I refinance?
Once you’ve chosen the right home loan for your needs and have been approved for refinancing, the rest of the process is usually all handled by the lender or your mortgage broker.
Don’t be afraid to speak with a lender to discuss your options, ask any questions and find the right home loan to suit your needs.
All new loans require an application process, including refinances, and you’ll probably need to provide documentation, but a few hours of your time could save you thousands in the long run.