August 25, 2020 by Jim Demetriou
Why should you consider refinancing?
There are many reasons for considering refinancing your home loan, but the main reason to do so is because your current loan no longer suits your needs.
Here are some of the reasons why you might consider refinancing, along with the benefits it may offer.
Secure a lower rate
It’s a competitive market for lenders right now, and that means borrowers can tap into some great home loan deals. In fact, one of the key reasons homeowners choose to refinance their loan is to secure a lower interest rate. This can help lower your monthly repayments and potentially cut thousands of dollars from the overall cost of your loan.
Refinancing can come with some costs so it is essential to weigh up the savings of refinancing against the expense involved. As a guide, if you can trim 0.5% from your home loan rate, refinancing is likely to put you in front financially.
If you do decide to take advantage of a lower rate, and switch to a variable rate mortgage, you need to understand the risk that comes with the possibility of rates rising in the future.
We’ll evaluate and compare your home loan with hundreds of others by taking into account rates, fees and features to check that you have the loan that’s right for you.
Even if you’re not ready to refinance right now, it makes sense to have an annual check up to make sure your loan still meets your needs.
More certainty with a fixed rate
If your current loan has a variable rate interest rate but you would prefer the certainty that repayments will stay the same for a period of time, you may wish to switch to a fixed rate.
The end of a fixed rate term
Currently have a fixed rate loan? It’s essential to check the ‘revert’ that applies once the fixed term expires. If this ongoing rate is not competitive it may be worth thinking about refinancing when the fixed rate ends.
Switch to a different lender
Your existing loan or lender may simply not be meeting your needs anymore. For instance, you may not be able to secure sufficient funding to achieve a particular goal. You may be unhappy with the level of service you are receiving, or you may prefer to take advantage of a bundled, ‘package’ loan offering discounts and fee savings on a variety of financial products, not just your loan. If any of these sound familiar, it could be time to take your business elsewhere by refinancing your loan.
Revert to a more ‘basic’ loan with fewer features
The features available on your home loan are just as important as the rate you’re paying. Some features make your loan easier to live with, others help you pay off the loan sooner, and some can help you build wealth. The key is to only pay for those features you will use because the more features your loan offers, the higher the rate could be. So if your loan has features you aren’t tapping into, it could be time to think about refinancing to a cheaper, ‘basic’ loan.
Improving your loan features
On the flipside, if your current loan is a bit light on features, you could benefit from switching to a new loan that allows you to take advantage of key features that suit your lifestyle. Some of the most useful loan features include:
- Flexible repayments – Being able to make extra repayments at no additional cost is a big money saver as this will help you pay off the loan sooner. You may also want the flexibility to make loan repayments weekly rather than monthly as this can also help you fast track your mortgage.
- Repayment holiday – Repayment holidays offer you a complete break from repayments, or a period of reduced repayments. This might be useful during career changes or breaks, such as maternity leave. Often this is available only if you’re in advance on your loan.
- Offset account – An offset loan involves having a savings or transaction account linked to your loan. The balance of the linked account is deducted from, or offset against, the balance of your loan when the monthly interest charge is calculated. As a guide, if the linked account has a balance of $10,000 and your loan is worth $300,000, interest will be based on a loan of $290,000 ($300,000 less $10,000). This makes an offset a great way to put personal savings to work to pay off your loan faster without having to make additional repayments. Be aware, offset is a feature that may not be available on low rate basic loans so you need to weigh up if the value of your savings will be sufficient to make up for a higher loan rate.
- Redraw facility – This feature lets you withdraw any additional repayments you have made on your loan, and it can be very handy if you need cash in an emergency. Redraw is available with most loans, so it’s certainly time to consider refinancing if it isn’t a feature of your current mortgage.
- Flexible rate options – The freedom to divide your rate between fixed and variable components, or even make interest-only payments for a period of time can make your loan easier to manage.
- Loan portability – Australians tend to upgrade their home about every seven years, and that’s when loan portability can be very useful. It lets you take your loan with you when you move from one home to another without the expense and hassle of arranging a new loan.
Your Mortgage Choice broker, in the Sutherland Shire can help you work out which features you may be able to make use of. Call Jim Demetriou o 02 9525 0112 to make an appointment
