Refinancing your home loan is a sensible thing to do during a period of interest rate hikes. In fact, a growing number of Aussie homeowners are actively searching for the best fixed rate home loans on offer from lenders. How are they doing this? By refinancing.
According to the latest data released by the Australian Bureau of Statistics (ABS), Australians refinanced $17.8 billion worth of mortgages over the past 12 months! That’s a 4% increase from the year prior (back before the Reserve Bank of Australia started increasing the official cash rate).
But as a financially responsible mortgage holder, how do you decide if it’s a good time to refinance your home loan? Should you refinance in response to changed circumstances (perhaps the birth of a child or a promotion at work)? Or is refinancing something that you should schedule regularly if you want continual access to the best-fixed rate home loans?
Book an appointmentWhy refinance your home loan in the first place?
As of this writing, the RBA cash rate sits at 4.1%. This is the highest the cash rate has been in more than a decade. So with this in mind, why would homeowners want to refinance loans? Shouldn’t one look into home loans refinance when the cash rate is low?
While it’s true that many homeowners tend to consider refinancing when interest rates are low, there are still advantages to be gained in a rising rate environment:
- Even with a higher cash rate, there may be other lenders with home loan refinance offers that have lower interest rates than what you currently have. By refinancing, you could secure a new loan with a lower interest rate, reducing your monthly mortgage payments and potentially saving money over the life of the loan.
- If you currently have a variable rate mortgage and anticipate further cash rate hikes, refinancing to fixed-rate refinance home loans can provide stability and protect against future interest rate increases. This way, your monthly repayments remain constant, regardless of any future rate hikes.
- Rising property values can provide an opportunity to access the equity in your home through refinancing. You may be able to tap into the equity to fund renovations, investments, or other financial needs. This can be particularly beneficial if you have built up substantial equity over the years.
- Home refinance loans often come with debt consolidation options. This can be an opportunity for you to consolidate high-interest debt, such as credit cards or personal loans, into their mortgage. By combining multiple debts into a single loan with a lower interest rate, you may reduce your overall interest costs and simplify your finances.
- Adjust the terms of your loan, e.g., changing the loan duration, switching between interest-only and principal-and-interest repayments, or adjusting other loan features to better align with your current circumstances.
- Refinancing enables you to explore loan products with improved features and benefits that may not have been available when you initially obtained your mortgage. This could include features like an offset account, redraw facility, or the ability to make additional repayments without penalties.
Can you refinance a fixed loan?
Of course. Any type of home loan can be refinanced. But if you’re worried about the contract you signed outlining the period of time the loan is fixed, then you are right to feel so. To refinance a fixed loan essentially means breaking the contract, and your lender may require compensation for any loss. This comes in the from of break costs and discharge fees.
To help work out how much these costs could be, feel free to ask your lender or a mortgage broker. As a mortgage broker myself, I can help assess the potential savings and costs associated with refinancing.
Can a mortgage broker refinance your home loan for you? Well, we can certainly assist you with that. I personally will find competitive fixed home loan rates on your behalf, and help you understand the impact of refinancing on your financial situation.
Ask a refinance mortgage brokerSo — when is it a good time to refinance your home loan?
Many Australian homeowners wind up paying the dreaded home loan “loyalty tax” because they wait too long to refinance. But you aren’t always guaranteed to save money if you refinance like clockwork.
Technically speaking, when can you refinance a home loan?
In general, you can technically refinance your home loan at any time, subject to certain conditions:
- You will have to meet the lender’s eligibility requirements, i.e., credit score, income, employment stability, existing debts, and the loan-to-value ratio (LVR) of your property.
- You have completed a minimum period of time on your existing loan.
But how you decide if it’s a good time?
Personally, I recommend that mortgage holders talk to a broker about reassessing their home loan every 2 years. This assessment will help you to figure out how does refinancing work or when to refinance home loan, whether or not refinancing is really going to work in your best interests, based on:
1. How competitive your interest rate is
If your interest rate is no longer competitive, then you could be paying a lot more interest than necessary. Refinancing to a home loan with a lower interest rate could save you literally thousands of dollars in the first 12 months alone.
2. Whether your home loan has the right features
When you were a first home buyer, you may not have needed any added features, but now that you’re a few years into your mortgage, you could find them more worthwhile. Home loan features can play a big role in helping you to achieve your long-term financial goals. For example, do you want to pay off your home loan as fast as possible? Then you’ll need a home loan that allows you to make additional repayments. Are you planning to renovate at some point in the future? Then a redraw facility could help you finance the construction.
3. When your current fixed term is due to end
Most home loans with a fixed rate will automatically roll over to the standard variable rate when the fixed term ends. This could result in you suddenly paying a lot more interest than you were before. That’s why it’s a good idea to consider refinancing in the months leading up to when your fixed term expires.
4. If you need to access equity
Equity is the difference between what your property is worth and how much you currently owe on your home loan. For example, $600,000 (property value) minus $350,000 (mortgage balance) equals $250,000 of equity. If you’re thinking about funding a renovation, consolidating personal debt or buying a car, then refinancing could help you to access the equity in your home so you can fund your plans.
Book an appointment with PhilWhen is it not a good time to refinance your home loan?
A home loan assessment may sometimes show that it is not a good time to refinance your home loan. This could be because of:
1. High exit fees
Some lenders will charge borrowers a fee to discharge their home loan. And if you’re currently on a fixed term home loan, you could also be charged a penalty if you decide to refinance before the fixed term has expired. So, it’s important to compare potential savings (from reduced interest) with any associated fees.
2. Your Loan to Value Ratio (LVR)
When considering a refinance, you’ll need to determine what your Loan to Value Ratio is. You can do this by dividing the balance of your loan (how much you want to refinance) by the current value of your property and then multiplying the answer by 100. For example, a $360,000 loan divided by $400,000 property value equals an LVR of 90%. If your LVR is higher than 80% you may be charged Lenders Mortgage Insurance (which could end up costing a lot more than what you would save on reduced interest).
Refinance your home loan with trusted Gold Coast mortgage brokers
If you’re wondering whether or not it’s a good time to refinance your home loan, then the best thing you can do is ask a professional for some expert advice.
I have been in the industry many years, and as a mortgage broker Gold Coast homeowners have come to know and trust, I can guide you on this refinancing journey with the utmost care and expertise. Give my team at Professional Lending Solutions a call on Ph: 0421 934 033 or Ph: 07 5597 6049, and I’ll happily do a free assessment of your home loan. If now’s not a great time for you to refinance, I’ll be honest and upfront about it.
Refinance Gold Coast today!
Phil’s journey from banking to mortgage brokering reflects a career driven by a commitment to personalised service and tailored financial solutions. With a distinguished background in banking, including roles at NAB, ANZ and Lloyds TSB Bank in the UK, Phil spent 12 years developing expertise in personal and commercial finance, while also completing a Bachelor of Business (Finance), followed by an MBA majoring in International Business.