When Should I Refinance My Home Loan?

5 June 2019
Some Australians with an existing home loan who feel they could get a better deal choose to refinance.

Put simply, refinancing involves taking out a new loan that repays and replaces your existing one. Generally, the aim is to secure a lower rate, better terms and features, or potentially both. This could be a new home loan negotiated with your current financial institution, or it could involve switching to a different lender altogether.

People may choose to refinance their home loan for a variety of reasons. For some it’s an opportunity to consolidate debt, while others may be purely motivated by saving on costs through a lower interest rate or fewer fees. Others refinance to get access to extra home loan features, such as offset accounts or the ability to fix their interest rate.

Where do I start if I’m looking at refinancing?

There are many stages to refinancing a home loan, from consideration all the way through to application and approval, but a good starting place can be speaking to a lender – and it may be beneficial to do this sooner rather than later.

This can be particularly helpful if you are refinancing the home loan to pay for significant life goals like home improvements, an investment property or a bucket-list holiday.

Discussing your plans with your lender early may give you a clearer idea about how much you can borrow by refinancing and a firmer budget to work with on your project.

Bear in mind that refinancing may not be right for everyone. Do your research and make sure you’re switching to a better deal for your circumstances. Be sure to read the fine print of both the new and existing home loan contracts. If there are charges for paying off your current loan early, or fees for setting up the new loan, any savings could be cancelled out.

When might be a good time to refinance?

While there’s no such thing as a perfect time to refinance – you should assess your personal and financial situation before making a decision – a good place to start is scouting for a better deal. To make sure the numbers add up, you could use an  online calculator to compare rates and fees from different providers, so you can see clearly how much switching might actually save you.

Refinancing your mortgage may be more than just an opportunity to reduce your repayments – it could also be a chance to access the equity (the value of your property minus the amount you still owe on your loan) you’ve built up in your property, or to restructure your mortgage to better suit your lifestyle.

Whether you’ve found a better interest rate, your mortgage no longer suits your circumstances, or your home no longer suits your lifestyle, it could be time to look at capitalising on the current competitive market, with some lenders advertising deals for new customers. Particularly if you’ve had your loan for a few years, there’s a chance you could secure a better deal by refinancing with a loan that’s a better fit for your current situation.

Quick tips to keep in mind when refinancing

Get organised

If you’re looking at switching home loans, getting organised before you chat to a lender may speed up the process. Try to have all the paperwork ready, including proof of income (pay slips), statements for your current home loan, and statements for any credit cards or personal loans you may have. Of course, the process may be faster with your current lender, since they’re more familiar with your finances.

Get your home looking its best

As part of the home loan refinance process your lender will likely want to have your home valued, so a hot tip is to give the place a spring clean before this happens. Presenting your property at its best could be a key contributor to getting your loan request over the line, since a higher valuation on your home will give you a lower loan-to-value ratio (LVR) – meaning your loan may be considered less risky, potentially with a lower rate and fewer costs.

Cut back on non–home loan debt

Aim to reduce any credit card or personal loan balances to the best of your ability. Having less debt and more of your income available may mean you’re eligible to refinance to a higher amount.

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Matt Read - ME BankMatthew Read is ME’s Money Expert. He has over 15 years’ experience in the financial services and banking industry.

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