When is a good time to refinance my home loan?
Many homeowners set up their home loan repayments to automatically be debited from their account - knowing they are slowly chipping away at their debt without needing to put much further thought to it.
However, this set-and-forget mentality could actually cost you thousands in interest repayments. How? Because interest rates are constantly changing and many lenders are offering deals to entice borrowers across, meaning there could very well be a lower interest rate available to you. When was the last time you compared your home loan? If it has been more than a year, then it is a good idea to get onto it.
Finding a lower interest rate isn’t the only reason why you may choose to refinance your home loan. By comparing your options you may also be able to find a loan with more features that you want, free up equity or you may be able to consolidate multiple debts into one.
Here are four of the key reasons you may consider refinancing your home loan.
1. Find a more competitive interest rate
One of the most common reasons homeowners look to refinance their mortgage is to get onto a more competitive interest rate. With a lower interest rate you could lower your monthly repayment without altering the amount of interest you pay over the term of your loan, or maintain your repayments but pay your loan off sooner.
The interest rate isn’t the only consideration when refinancing. Some lenders offer home loan refinancing deals to entice borrowers. These often come in the form of a cash payment or waived fees. A cashback deal should not be the main determinant of whether you switch to a lender, but can be factored into the calculation of how much you could save you over the life of the loan.
2. Access equity
If you have a need for additional funds, such as to conduct renovations on your home, you may be able to use equity built up in your property. This could be done through refinancing your loan amount by leveraging the equity as security, or potentially accessing a line of credit loan, which allows the borrower to take out funds up to a certain limit at any time.
3. Make use of features
Not all home loans are equal - some come with features attached that may be useful for some borrowers. For example, some may offer an offset account or redraw facility that can enable you to put more money toward paying off the loan, which will save you in interest, but access it if you need it. Note that often these features come at an additional price tag, so it is a good idea to calculate the potential savings while considering the fees.
4. Consolidate debt
If you have multiple debts, such as credit cards, car loans or personal loans, it may be a good idea to consolidate them into one. This could merge repayments so you only have one and potentially get your other debts into a loan with a lower interest rate.
When can you refinance a home loan?
There is no hard and fast rule around when you can refinance your home loan. The key consideration is fees. For example, if you currently have a fixed-rate loan, you will likely incur break fees if you wanted to refinance. There are also fees such as application and discharge fees, property valuation fees and more. Because of this, it isn’t particularly common for people to refinance in their first 12 months - though it is possible.
Other common triggers for people to consider refinancing are major changes in your life, such as marriage, death in the family, birth of children or a change in career, you may choose to look at your options to refinance.
It is a good idea to regularly conduct a health check on your home loan to ensure you have a competitive interest rate and are getting the most out of your features.
Speak with your local mortgage broker about whether it is a good time for you to refinance and to set your strategy to achieve your financial goals.