Guide to refinancing your home loan in 2023
Your home loan is one of the largest financial commitments in your life, so it is important to regularly review your loan and ensure you’re getting the most competitive offer in the market to suit your needs.
As both the broader market and your individual situation changes over the lifetime of your loan, you may find that your initial loan is no longer suitable. The great news is that you can refinance your home loan, and here is the guide to help you understand more about the refinancing process.
Why should I refinance my home loan?
There are a number of reasons why people refinance their home loan. Some of the most common reasons include:
To get a lower interest rate
Increase your loan amount to access equity to purchase another property or undertake renovations
Increase your loan term to lower monthly repayments
Decrease your loan term to reduce the time spent paying off the loan
To access different loan features like offset accounts or redraw facilities
Many lenders offer cashback offers to customers looking to refinance, but it is important to understand the reasons why you are undertaking a refinance beyond a short-term cashback offer, as you will be repaying the loan for a long time.
How much can I save by refinancing?
Refinance cashback offers
Lenders will often offer different refinance cashback offers to entice new customers. Canstar offers a list of all of the lenders who have cashback offers live at the moment. A cashback offer can give your loan repayments a boost, but you need to look at all of the features, fees and terms of the loan to make sure you’re really getting a better loan for your requirements.
Lower interest rates
It’s important to regularly check what interest rates are on offer with different lenders. If you’re working with Unbroke, we’ll be in regular contact to discuss your loan, or you can contact us if you feel you could be getting a better rate.
If the lender is advertising a lower rate for new customers than you’re currently receiving, and you have a good credit history, you could well be able to negotiate a better interest rate.
In the long term, even a small percentage change in interest rates could save you thousands, and if you’re requesting a lower rate on your existing loan, you won’t be required to submit new applications as is the case with refinancing.
If achieving the desirable interest rate means switching to a new lender, you will need to apply for a loan with that lender, and there may be break costs with your existing lender. A refinancing calculator is very helpful to determine the overall benefits and costs of refinancing.
Change in loan term leading to lower monthly repayments or a shorter total loan term
Another reason someone might choose to refinance their home loan is to change their loan term. If you’ve only got 10 years left on your existing loan, but switch to a 20 year loan term with another lender, your monthly repayments will decrease, making servicing the loan more manageable. However, you will end up paying more interest over the life of your loan so it’s important to consider whether this is the best option for your situation in both the short and long-term.
When is a good time to refinance?
There is no ‘right time’ to refinance, it really depends on your own situation and goals. Any of the reasons below could lead you to consider refinancing:
Change in financial situation
Accessing a lower interest rate
Desire to access home equity for the purpose of purchasing another property, renovation or purchasing other assets
Switch to a loan with more desirable features
Consolidation of debt
Before deciding to refinance, it’s always important to speak to your mortgage broker about the options available with your existing loan and lender as well as any cashback offers that might be available for refinancing. Your broker has contacts with each of the lenders that will be able to provide you with information you aren’t able to find online.
Costs to consider when refinancing
Here are some of the common costs to consider when refinancing your home loan:
Break costs
A break cost is a fee that covers the loss of the ledner if you repay a fixed rate home loan early or switch loans, interest rate or payment types before the end of a fixed rate period. For more information on break costs you can read this article.
Discharge settlement fee
Lenders may charge a discharge settlement fee when you exit a loan, which covers their admin costs for closing your home loan.
Application fee
When you refinance, you are applying for a new loan, so application fees may apply depending on the lender and loan product you are applying for.
Property valuation fee
The new lender may need to conduct a valuation to calculate the equity you have built up in your home. The cost can vary by lender and some lenders include the valuation in your application fee.
Settlement fee
A settlement fee may apply if there are legal costs in settling a new home loan with the lender.
Mortgage registration fee
You’ll need to register your new mortgage with the state or territory government. The amount varies by state and territory, and you can find the current rates here.
It is always important to compare the comparison rate on the loan you are considering switching to, not just the headline interest rate.
How to refinance your home loan
The first step in refinancing is to speak to your mortgage broker about what options are available. Your mortgage broker should be checking in with you regularly to ensure your current loan is best suited to your requirements, and if refinancing would benefit you.
If you don’t have a mortgage broker or would like to speak to us about refinancing, you can schedule a consultation with us. We’ll work with you to look into options with your current loan, including requesting a better interest rate if this is what you’re after.
If you decide to refinance, we’ll help you through the refinancing process from start to finish, helping you to manage the closing of your existing loan and application for your new loan.
