Should I refinance?
With interest rates in Australia at historic lows many people are asking ‘should I refinance?’ It’s never a simple yes or no answer; there’s much to consider so let’s work through some of the issues surrounding whether or not you should refinance.
Should I refinance for a lower interest rate?
One of the most common reasons that people do refinance their mortgage, but it’s not always the best reason. You need to work through all the costs involved, such as fees and charges, as well as the interest rate.
Ask yourself these questions:
- Will you save on costs?
- Will the savings you make cover your refinancing costs within two years?
- Will you be able to maintain the same loan features?
If the costs involved in refinancing are not covered in savings over the first two years then refinancing may not be the best option. You may be better off getting us to approach your current lender on your behalf and asking for a lower interest rate in exchange for staying with them.
Should I refinance if I am renovating?
Another popular reason for refinancing is to fund renovation plans but you do have other options to consider first. There are a number of loans available for those who are refinancing in order to complete renovations such as construction home loans and line of credit home loans. Typically, a construction loan is appropriate where serious structural work is required – think new wiring, plumbing, walls and adding a new level. If your renovations are more of a cosmetic nature – think new kitchen or bathroom then a line of credit loan or even a personal loan can be used.
Refinancing can be a good idea when renovating as it will allow you to:
- Access the equity in your property to fund the renovations
- Increase the cash flow during your renovations
- Receive funding that your existing home loan might not offer
Should I refinance to consolidate my debts?
This option may involve adding a personal loan, credit card debt or car loan into your mortgage in order to take advantage of the typically lower interest rate of your home loan. While a benefit can be quickly paying off your debt, this refinancing does usually require strict discipline. Having a chat with one of our team is the best first step if this is the type of refinancing you are thinking about.
Should I refinance to build or buy a new home?
Refinancing your existing mortgage to a new one with a larger or smaller loan size might be required if you’re looking to buy a new home, depending on how much it costs.
If you’re building a new home, you might want to refinance to a home loan with a construction option. This option lets you withdraw the funds you need to pay your builder at the different stages of construction. This means amounts you haven’t withdrawn yet won’t be charged interest, saving you money during the time taken to build your new dream home.
Should I refinance for more flexibility?
A basic home loan can suit you when you first have a mortgage because it allows you to concentrate on making repayments without being distracted or being charged additional fees or other complex features. However, if you are ready to really take control of your mortgage, you may want more flexibility with a fully featured loan – redraw facility, offset account, split facility.
Variable rate loans tend to offer the most flexibility, but increased competition in the market has meant that some lenders are offering more features on fixed rate loans. The downfall with variable rate loans is that if the RBA’s official cash rate goes up your interest rate will most likely go up with it.
Should I refinance if I can’t afford my mortgage?
If you can’t comfortably meet your loan repayments then you might be able to refinance your loan to extend the term and reduce repayments, or switch to a more basic loan with a lower interest rate.
If you’re refinancing to a longer term to lower your repayments, know that you might end up paying more interest than what you normally would. Also, rather than refinancing, it might be worthwhile getting us to speak to your lender and explain to them that you need some extra time to sort out your financial situation.
If you’re looking to refinance to a home loan with a lower rate, be aware that exit fees and upfront costs might reduce some of the savings, so ensure you can cover these costs. Lenders have hardship teams devoted to helping you if you’re experiencing a difficult period such as illness, redundancy or unemployment. Be sure to speak to our professionals before refinancing.
