Refinancing

What is refinancing?

Refinancing means replacing your existing home loan with a new one. You can do this by moving your home loan to a new lender or updating the terms with your existing lender. Borrowers typically refinance to get a lower interest rate or more flexible terms.

Why would I want to refinance?

There are a number of reasons why a borrower might want to refinance. Some financially savvy borrowers refinance to a better loan every few years, while others choose to refinance because their personal circumstances have changed and they are struggling to meet their repayments.

Your current loan is outdated and there are better options out there.
You want to use your equity to renovate or buy another property.
You’re struggling to make repayments or need extra cashflow.
Lifestyle changes such as a growing family.
You’re looking for more flexible repayment options, such as making larger or extra repayments, so you can pay off your loan faster.
You're paying high interest for loans such as credit cards, personal loans or car loans. Consolidating these loans into your home loan can reduce the total amount of interest you'll pay.

What are the benefits of refinancing?

There are a number of benefits to refinancing with the most prominent being:

Reducing your monthly repayments: A lower interest rate can reduce your monthly payments and free up some extra cashflow.
Cut years off your loan: More flexible terms can allow you to make extra monthly repayments. This, combined with a lower interest rate, means you can pay off your loan faster by maintaining your current monthly repayments. It also means you'll save money that would otherwise have been spent on interest.
Get cash out: You can access equity from your home loan to finance renovations and other costs that you might have.
Consolidating debt: You can reduce the overall interest you pay by combining other loans (credit cards, car loans or personal loans) into your home loan and paying those off at a lower interest rate. You can save money that would have been spent on interest since home loan interest rates are generally much lower (usually between 3-6%) than other interest rates such as credit cards, which can be as high as 19%.
Improving the terms of your loan: If you want to set up an offset account, redraw facility, split your loan or anything in-between, then refinancing to a loan that fits your finances and lifestyle could help you plan for the future.

How do I refinance my home loan?

Since interest rates change regularly, it’s smart to regularly research and compare your home loan with others on the market to make sure that you have the best deal available.

Compare loans: Begin by comparing your current home loan with other loans on the market. While individual lenders will show you their products, we help you compare hundreds of loans from over 30 major Australian lenders.
Tell us about you: Answer a few questions about your needs and preferences and we will access and have an chat to ensure we fully understand your situation and goals.
Choose a deal: From our recommendations that best fit your goals, choose a lender.
Relax: Once your home loan settles, you can relax and enjoy the benefits of your new terms.

Are there any drawbacks to refinancing?

When refinancing your home loan, there are few things to look out for and research. They can include:

The cost of refinancing: if you decide to refinance your home loan, there can be some costs and fees involved. We are able to calculate if the added cost to refinance will be worth it long term.
Cost of breaking from a fixed rate: if you are currently on a fixed interest rate, you may also find yourself having to pay additional break fees. However, this will depend on how far you are into your home loan, along with the size of the loan.

Do I have to pay a fee to refinance?

Depending on your current loan and lender you may need to pay a fee to refinance. But, if you look around, you can find one that costs you less in the long run. Some of these fees could include:

Borrowing costs: When you refinance, your new lender may charge you a series of fees upfront.
Break costs: This can occur when you have a fixed loan with your current lender and wish to refinance with another lender before your fixed term is up. Your current lender will calculate this fee based on the remaining time on your fixed interest rate.

We can calculate if these added costs will be worth it long term.

How much equity do I need to refinance?

Ideally, you'll have equity of 20% or greater of your property's value (or less than 80% LVR) before refinancing. If your LVR is above 80% there are still refinancing options available to you but you may need to pay Lenders Mortgage Insurance and this will directly impact how much you gain to save by refinancing.

Before you think about refinancing, calculate your equity in your home first. You can come to this figure by taking the value of your home and then subtracting your outstanding home loan amount.

The higher this number, the more equity you have, which can translate to larger savings from refinancing. High equity, or low LVR, usually means you’re more likely to be eligible for more favourable interest rates and lower overall fees.

Can I refinance an investment property?

Yes, however your eligibility may vary from lender to lender.

Many investors choose to refinance their investment properties in order to access funds to purchase further investment properties or renovate your existing portfolio.

This is an easy way to grow an investment portfolio without needed to gather a deposit. In fact, many investors have started out with just one deposit and simply used the equity built up in each investment property to buy the next one, and the next one and so on.

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