To refinance a home loan is a big decision that can affect your long-term financial position, so it’s important to make sure you’ve covered everything you need to know before taking that step.
If you’ve given some thought to home loan refinancing – where a new lender covers your existing mortgage signs you up to a new one – here are the next steps to take before making your final decision:
Why do you want to refinance?
Many people look at refinancing in order to save money or pay off their home loan faster. Whether it’s a lower interest rate that sounds appealing to you, reducing your regular mortgage payments, consolidating other debts or signing up to a different term (for example, from 30 years to 15 years), it can be worthwhile.
Whatever your reason, it’s worth looking closely at a new home loan to make sure it will fit the purpose you’re seeking – both in the short-term and the long-term. You can do this by chatting with the bank, and asking them for a key facts sheet to help you learn the ins and outs of the home loan product you’re considering.
Carefully calculate the costs and benefits
Is home loan refinancing really worth it? While getting a better deal looks appealing, it’s important to do some careful calculations to make sure it really is saving you money or time off your mortgage. For example:
- If you’re opting for a new mortgage with lower monthly payments, work out whether this is helping you get closer to paying off your debt.
- If you’re looking at a lower interest rate, make sure the home loan doesn’t have fees attached to it that will end up costing more in the long run. Your Mortgage Magazine recommends making sure any refinancing fees can be recouped within 12 to 18 months, in order for it to be considered a good deal.
- Look beyond honeymoon or introductory interest rates. Do your calculations based on the long-term interest rate for a true reflection of potential savings.
- If you’re switching from a variable rate to a fixed rate (or from fixed to variable), consider whether this is a wise decision for your current and future circumstances.
- Find out if you will you have greater access to your home’s equity if you refinance
- Talk to your current lender to find out if they can reduce your interest rate, which may save you from refinancing
- Ask your current lender if there are any early termination penalties or break costs attached to your existing loan when you refinance.
Apply with your new lender
Once you’ve thought through the costs and potential savings, and compared home loan options to find the best deal for your circumstances, you may choose to go through with an application.
If you’re refinancing with a new lender (as opposed to refinancing with your existing bank), you’ll need to go through the full process with them, including providing proof of income, personal details, house valuation, and asset and liability details.
Australian Unity’s range of home loans offers competitive rates and features to consider when refinancing.