Everything you need to know about refinancing your home loan

Refinancing is a great way to  improve your financial situation, whether by lowering interest rates and repayments or by putting the equity in your mortgage to good use. However,  while the timing seems right to refinance, how likely are you to qualify for a new home loan? 

Refinancing may not be as easy as it was previously due to the amount of job losses, reduced income and reduced hours Australians are facing at the moment.

Home loan lenders are therefore checking criteria such as job security, credit scores, financial health and how much equity you have built up on your existing loan. It is likely that in this post COVID-19 financial environment, the qualifying factors may be even stricter than when you first received your loan. And if that was in the last few years, that is pretty strict.

If you are fortunate enough to be one of those who has not been impacted financially by this pandemic, now may be a good time to refinance your home loan.

But what if I have recently become unemployed?

Unfortunately, the chances of qualifying for a new loan may not be in your favour if you, or your partner, has recently lost your job. A reduced income will also be an impediment as you may not be able to service the loan.

Some of the larger lenders have tightened their lending criteria so as to exclude applicants that have a primary income that is derived from a casual or contractor position. 

Who should I refinance my home loan with? 

While the bigger banks seem like the obvious choice, you are more likely to find more competitive rates with smaller lenders such as online banks and lenders, mutual banks and credit unions. You can also use the InfoChoice Refinance Calculator to see how much you could potentially save if you refinance your home loan. 

The calculator will help you breakdown repayments, understand potential savings and interest across multiple years.

Flexible repayment options

Flexibility is imperative! Look for a home loan that offers flexibility, including the ability to make extra repayments, an offset facility, the ability to redraw, etc. These will help you pay off your mortgage sooner.

Low interest

The lower the interest rate, the less your monthly repayments will be, allowing you to pay off your principal at a quicker rate. InfoChoice can help you compare a range of low interest mortgages including fixed, variable and even reverse/seniors mortgages.  

Beware of Honeymoon Rates

Heavily-discounted fixed interest rates can be offered by some lenders for a specified period of time. However, in some cases, when the fixed period ends the interest rates will increase significantly, often to the lender’s standard variable interest rate, leaving borrowers to struggle to reorganise their budgets.

Talk to your bank

If you find that you are affected financially by the crisis and  are unable to refinance, there may be a couple of other ways to relieve some of the financial burdens you may be experiencing at the moment.  

Banks have introduced various mortgage relief options  such as repayment pauses, reduced payments, decreased interest rates, and waived fees. They could also vary your loan so it is interest only. If you feel you need support from your lender, call your bank and see where they can offer assistance. They will generally help you out in any time of crisis, not just during a pandemic.

Repayment holidays are also available. A repayment holiday is a pause on your home loan so you can take a break from paying your home loan for an agreed amount of time, with no repayments due at all until the period is over.

It is vital to let your bank know of any changes circumstances as soon as possible. Be as up front with them as you can and they will help you out as much as they are able. Just don’t wait too long to do so: the quicker you act, the better your long-term outlook will be.

This update is not financial advice. This article is general news and information.

Home Loans: The comparison rates are based on a secured loan amount of $150,000 and a term of 25 years.

Personal Loans: The comparison rates in this table are based on a loan of $30,000 and a term of 5 years unless otherwise indicated in the product name with^, in which case, the comparison rate is based on a loan of $10,000 and a term of 3 years. The comparison rates are for unsecured personal loans only for the relevant amounts and terms. The comparison rates for car loans and secured personal loans are for secured loans unless indicated otherwise.

WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.

The products compared in this article are chosen from a range of offers available to us and are not representative of all the products available in the market and influenced by a range of factors including interest rates, product costs and commercial and sponsorship arrangements

InfoChoice compares financial products from 145 banks, credit unions and other financial institutions in Australia. InfoChoice does not compare every product in the market. Some institutions may have a commercial partnership with InfoChoice. Rates are provided by partners and taken from financial institutions websites. We believe all information to be accurate on the date published. InfoChoice strives to update and keep information as accurate as possible.

The information contained on this web site is general in nature and does not take into account your personal situation. Do not interpret the listing order as an endorsement or recommendation from us. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.

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