Refinancing is the process of paying off the current mortgage by taking out a loan from the same lender or another lender. In recent months, we have seen a significant increase in the number of refinances. The historically low mortgage rates in Australia encourage homeowners to restructure their finances. The decision to refinance an existing home loan is based on your financial situation. Before applying for a refinance, you should be aware of some important facts about refinancing.
Refinancing costs: Know them!
Refinancing can be expensive, costing between 3% to 6% of your total loan. The total cost of these charges can help determine if refinancing is a good idea. If you’re still on a term with a fixed rate, you must pay break costs (ranging from $0 up to $1,000) and application fees. There are also property valuation fees that can sometimes be waived and discharge fees.
You will also need to pay ongoing fees for account features like redraws or offset accounts. Mortgage insurance (LMI), which is payable if the loan-to-value ratio is over 80%, can also be rolled into a new loan. Negotiation is always recommended, as the lender may waive some of the refinancing costs.
What you want to achieve is important.
You should be clear about what you hope to achieve from refinancing. You should determine your financial goals before refinancing to see if it is the right decision. If you’re looking to lower your monthly payments, pay less interest for the entire loan term, or pay off your loan sooner, it is important to determine your goals. You can ask a financial advisor for help in choosing the best lender and loan product if you know what you want to achieve.
Refinancing now takes more time.
It is important to remember that banks are taking longer to refinance loans today. This applies to major banks as well as smaller lenders. Refinancing is a long process, and we recommend that people be patient. In fact, it took the four biggest banks 54 days on average to refinance a loan, compared with 36 days for smaller lenders.
Big four banks v.s. Non-big four banks
The Australian Mortgage Snapshot study shows that 83% of Australians select their home loan provider on the basis of interest rates. In the current market for home loans, lenders have revised their rates to be competitive due to fierce competition. In general, smaller banks have maintained lower rates. The Big Four banks offer more convenient and comprehensive services. We recommend that you discuss your financial needs and wants with a specialist. You will be able to determine the best option for you.
Save money by understanding how much you could save
This represents a savings of over $2,000 per year on a loan amounting to $500,000. Try our Refinance Calculator and see how much you could save.
Try our Smart Health Check tool to determine if your current loan still has a competitive rate on the market.
Refinancing has the main goal of saving money over the long term, particularly in today’s economic climate. This “Important Refinancing Facts You Should Know” is recommended.