Thinking of refinancing? Switching to a new loan or lender could offer benefits – but be sure it’s the right move for you. Here are a few things to consider before you make the switch
When to refinance
If you’re refinancing, you’re simply replacing your current home loan with a new loan. A home loan refinance could offer several benefits. Possibly the greatest drawcard is the potential to secure a lower home loan interest rate or improved loan features, both of which could help you get ahead financially.
For those looking for streamlined money management, refinancing your home loan could be a means of consolidating multiple debts into a single low rate home loan.
Alternatively, for home owners planning renovations, a new car purchase or another major expense, a home loan refinance may offer an opportunity to access home equity as a source of funds.
You can refinance either through your current lender or with a new lender.
Be aware of potential downsides
While there may be many benefits to refinancing, it’s essential to be aware of the possible downsides of replacing your existing home loan.
A key issue is that refinancing can involve additional costs like application fees on the new loan and possibly mortgage discharge fees on your current loan, or break costs if you currently have a fixed rate loan. Rather than flicking between loans and lenders every few years chasing a low rate, it may be more economical to look for a lender with a consistently strong record of competitive interest rates.
In addition, if you’re planning to borrow more than 80 percent of your home’s current market value, you may be asked to pay lenders mortgage insurance (LMI) when you refinance your home loan. This may be the case even if you previously paid LMI when you first purchased the property.
These factors make it critical to crunch the numbers to decide if a home loan refinance is the best solution for your needs. If you’re thinking of refinancing, take some time to compare home loans using a home loan comparison calculator to get an idea of potential savings
If you’re not sure, consider speaking to your mortgage broker or a financial planner for tailored advice suited to your situation.