Interest rates on the move?
Looking to tap into some equity?
Property market gone bananas?
Whatever your situation, refinancing is when you replace your current mortgage with one that’s more favourable to YOU. Done well, it can help you reach your goals, secure a better deal and save money.
And, when we consider a mortgage is often the biggest household expense for Aussie homeowners, it’s kinda a no-brainer to check in every now and then with your broker and ask the question, “hey, can we make my home loan work a bit harder?”
So, what does it actually mean to refinance?
What are the benefits of refinancing? (hint: there are a lot)
And are there any downsides?
But wait, what is refinancing?
The average home loan lasts 25 – 30 years. And if we think about how much change will occur in that time — both to your situation and the property market — we can begin to see why our mortgage should roll with the changes, too.
Refinancing is when you replace your existing home loan with a new one (either be with your current lender or an entirely new one).
But it’s not just for the fun of it. Most of the time, you’ll choose to refinance to reach a key aim — whether that’s to secure a lower interest rate, change your loan type or use equity to fund another purchase or project.
What are the benefits of refinancing?
The list is long, so let’s jump right in.
You can save money
“I don’t like saving money” said no homeowner, ever.
And when it comes to refinancing, saving money is often the driving decision.
Sure, there are costs involved in refinancing (but the savings often outweigh these). In fact, as mortgage brokers, it’s our role to assess if your savings will outweigh the costs and if your new loan is in your best interest.
You can unlock equity for [insert goal here]
Equity is the difference between the value of your property and the size of the loan you have for that property. For example, if your property is worth $700,000 and you still owe $500,000, your equity will be sitting at $200,000.
The good news? By refinancing, you can tap into this equity to reach other goals.
Maybe you want to buy another property, get a new car, fund a renovation or live your best life — and refinancing can make it happen.
You’ll be rolling with the times
Juuuust because your interest rate was once the deal of the century, doesn’t mean it’ll stay that way. Times change. Interest rates move. Property values increase (and decrease). By refinancing, you’ll be making sure you’re keeping up with these changing times.
Plus, by moving with the times you can avoid a little (big) thing called the home loan “loyalty tax”. Simply, this loyalty tax is the extra interest paid by existing customers compared to new customers. Because often, banks try and “woo” new customers by offering better deals, while raising rates for those that stay loyal. And it could cost you thousands of dollars each year.
You can switch up your variable or fixed rate
As homeowners, we know there are a lot of different pathways we can take when it comes to paying back a loan. Principal and interest loans. Interest only loans. Fixed rates. Variable rates.
And refinancing can be a great way to switch things up so your loan works best for YOU.
Perhaps interest rates are moving and you’re looking for some predictability (AKA a fixed rate)…
Maybe you’re on a variable rate and you’re curious whether there are better options elsewhere…
Or perhaps you’re about to move off a fixed rate and you want to make sure you’re landing the next best deal…
Whatever your interest rate goals, refinancing can allow you to make the switcheroo.
You may be able to pay off your home loan, sooner
Dreaming of being mortgage-free sooner than you originally planned?
If your property has gone up in value, refinancing may allow you to reduce your overall loan amount and even reduce your interest payable. And ultimately? Pay off your home loan, sooner. Booyah!
And of course, you’ll feel like a total boss
Ok, this shouldn’t be the *only* reason you choose to refinance.
But often, refinancing to reach your goals means you’ll walk away from the process feeling empowered knowing you’ve made a great move for YOU and your future.
And we might add, telling your friends “I’ve just refinanced my property” will make you feel like the adultiest adult that ever adulted.
Are there any downsides to refinancing?
There’s no such thing as a free lunch.
While the benefits of refinancing are clear — you won’t reach these perks without a few fees.
The costs of refinancing include things like government fees, bank termination fees, break fees and more.
But hey, the good news is these costs are often far outweighed by the benefits of refinancing (and as home loan experts, we wouldn’t let you start the refinancing process if we didn’t believe it’d be worth your while).
Got questions?
Are there any benefits of refinancing with my current lender?
Refinancing with your current lender is sometimes called repricing (AKA getting a better deal with your current lender). And it *could* be the easiest approach, given you’ll be keeping all your accounts and details in one place. Buuuut in many cases, lenders won’t give their existing customers the same deals they use to lure in new customers (AKA that pesky loyalty tax we mentioned earlier). So you may end up paying higher rates than you could be elsewhere. For this reason, it’s always worth weighing up this option alongside deals from other lenders (your home loan expert has your back here).
How often can I refinance?
There’s no legal limit to how often you can refinance. But given refinancing comes with a few fees — and may impact your credit score — you should weigh up whether this is right for you with help from a home loan expert.
How do I start the refinancing process?
The first step is to recognise your goals. Do you want to save money? Tap into equity? Switch up your loan type or features? Then you can get the ball rolling by meeting with a broker. Learn more about how to refinance a home loan — step by step.
How much effort is involved in refinancing?
We won’t lie, you’ll have to do a few things to refinance (like prepare your docs and walk through different options with your broker). But if you choose a home loan expert that’s been around the block a few times (oh hey!) they’ll do most of the heavy lifting for you.
At Finspo, you can meet our brokers online (phew) and upload your docs to a secure portal — which means we challenge you to do the whole process in your pyjamas.
Doesn’t sound so bad, does it?
Is the process of refinancing different from getting a loan the first time around?
Refinancing your property is similar to the first time you got a home loan. The difference? This time it will most likely be a whole lot less stressful and overwhelming because you know what to expect and you probably won’t be as emotionally invested in the outcome (like you were with your first purchase). Consider this round more transactional. Phew!.
So, should you refinance?
For most Aussie homeowners, a mortgage is often the biggest household expense. So if you’re looking to pay off your home loan faster and significantly impact your long term savings — it’s often a good place to start making changes.
Buuuut in saying that, every situation is different.
You should always weigh up your situation with a home loan expert (we know a few who can help) who’ll run through the numbers and your potential savings.
You’ll be shocked at how easy the process is…
- Book an appointment with a Finspo expert (online of course)
- Tell us about yourself and provide any additional info needed
- We’ll do the heavy lifting and present your options, so you can choose your approach
Simple!
Get the ball rolling and book your time with a Finspo home loan expert today.
