Should I refinance my home?
If you’ve been paying off your home loan for a few years now, it may be a good time to re-evaluate your home loan and ask yourself “should I refinance my home?" First let’s look at what refinancing is, and the pros and cons.
Refinancing – what is it?
Refinancing is moving your home loan to a new product with a more competitive interest rate or better features than what you currently have. This could be with your current lender or a new one, depending on eligibility requirements. You can save money by switching to another loan, by having lower repayments or by not paying loan administration fees. However, the key question you need answered is “when should I refinance my home?” Let’s look at that next.
When should I refinance my home?
If you’ve been on a fixed rate loan and the end of the term is coming up, now would be a good time to look for a better rate. If you want to consolidate debt, or are struggling with repayments, refinancing to a basic ‘no frills’ home loan may be an option worth considering. Accessing equity in your home for renovations or to purchase another property are also reasons to refinance.
If interest rates are starting to rise you may consider changing your variable home loan to a fixed home loan. A fixed loan will give you the peace of mind of knowing your repayments will remain the same over the course of the fixed period.
When shouldn’t I refinance?
Some key scenarios where refinancing may not be financially viable is if you’re about to move house. When you sell you're settling your loan on that property and likely taking out a new loan for another property anyway. Other times where refinancing may not make sense is if you're still making repayments during a fixed rate term, or if you own less than 20% of your property value (as you’ll likely have to pay lender's mortgage insurance again). Using a refinance rates calculator can help you work out whether you'll save or spend money by switching your loan.
If the value of your home has fallen, you’ll find yourself refinancing in negative equity. This is not ideal, as you're paying more for a home than what it is worth. Put off refinancing and make regular weekly or fortnightly repayments to get on top of your repayments (if the original idea was to refinance to a lower rate)
Review Your Current Loan
Work out how much you’ve paid off and how much you’ll be paying in interest over the remaining life of your current loan. Also ask yourself if your loan’s features are still working for you or if you’re looking for something extra. Redraw facilities and offset accounts are just some of the features available to you when you refinance. While you’re reviewing your loan, take into account any ongoing monthly or annual fees you’re likely to be paying.
Check out how much it will cost to exit your current loan. This means taking note of any early exit or termination fees. If you have a fixed rate loan these are likely to be quite high, which may outweigh the benefit of refinancing. There's no harm in asking your current lender for a better deal.
Do a Home Loan Comparison
The home loan and lending market is very competitive and there are many options to choose from. When shopping around for current refinance rates, the key things to look out for are fees and ‘introductory’ or ‘honeymoon’ rates. Check to see how long they last before reverting back to a higher standard rate. Keep in mind that not all rates are available when refinancing, which is likely to happen if you want to stick with the same lender. Some lenders do not accept refinances for certain loan products, instead they’ll be for new business only. Use our loan comparison calculator to see how much different home loans will cost you.
If you're looking to refinance your Home Loan to Horizon Bank, but are not sure where to begin, get in touch with our friendly team today and let us help you on your journey.
Horizon Bank has a branch network spanning the NSW South Coast and Illawarra. Horizon Bank branch locations: Albion Park, Bega, Bermagui, Berry, Merimbula, Moruya, Nowra, Thirroul, Ulladulla & Wollongong.
The content in this article has been prepared by Horizon Bank for general information only and it is not intended to be professional advice. It does not take into account your objectives, financial situation or needs. You should seek your own legal, accounting, financial or other professional advice where appropriate, and consider the relevant Product Disclosure Statement and Terms and Conditions before deciding whether to acquire any products or services offered by Horizon Bank and/or its affiliated partners. We do not recommend any third party products or services referred to in this article unless otherwise stated and we are not liable in relation to them. Any links to third party websites are for your information and we do not endorse any content on those sites. Horizon Credit Union Ltd ABN 66 087 650 173 AFSL and Australian Credit Licence Number 240573 trading as Horizon Bank.
