What to consider when refinancing your home loan
By Richard Holdcroft
With the lowest home loan interest rates in history now on offer, there are potentially huge savings to be had on your mortgage. Thanks to two rate cuts by the Reserve Bank in 2019 and fierce competition amongst lenders, refinancing could trim hundreds of dollars off your monthly repayments.
But lower rates aren’t the only thing that’s changed in the past few years. In the wake of the Hayne banking royal commission, banks have been forced to tighten their lending policies.
So when applying for home loan refinancing today, be prepared in advance for more requests for information than you may have encountered the last time you approached a lender.
This may be less of an issue when you’re refinancing compared to a first home buyer, as you already have a home and a track record as a mortgage customer, but you can still expect in-depth inquiries about your current expenses and income thanks to new responsible lending requirements.
Gavin Hartley of Brisbane is in the process of refinancing a $630,000 home loan he’s had since 2014, and says he’s had to answer a lot more questions than last time.
“It all seemed pretty quick and painless getting the loan (back in 2014),’’ says Gavin, “but this time around our new lender wants credit card statements, car loan statements etc. We definitely didn’t have to go through this much paperwork before.
“It’s not that big of a deal when you consider how much less we’ll be paying on the new loan each month, but if you’re thinking of going down this road then it’s definitely worth getting your ducks in a row beforehand.’’
Steps to refinancing
Even though refinancing may involve jumping through a few hoops, don’t let this put you off. Moving to a cheaper home loan in the current ultra-low-rate environment is a no-brainer.
And depending on your circumstances it can also help you unlock equity, consolidate your debts or access new features that give you more flexibility and let you get the most out of your mortgage.
As a first step towards refinancing, check to ensure you know what your latest interest rate is. Research consistently shows that many Australians aren’t even aware of what rate they’re currently paying on their home loans.
Then compare that to the very latest deals on offer from the dozens of different lenders through InfoChoice, and punch the numbers into the InfoChoice Refinancing Calculator to see how much you could save by refinancing.
Ask your existing lender first
Now that you know what’s on offer out there, call your existing lender before you approach anyone else. Tell them that you’re thinking of refinancing, and why.
Financial institutions often have special incentives and deals which they don’t publicise too much but use to persuade existing customers to stay with them.
However, if you’re still not happy with what they have to offer, then ask them what their loan discharge procedures are. Your lender can’t force you to stay with them if you’re not a happy customer, and they can’t refuse to discharge your loan.
There’s no set rule about how long the process should take once you’ve arranged refinancing, but if you feel your old lender is taking an unreasonable amount of time to attend to the settlement of your loan, you could consider approaching the Australian Financial Complaints Authority, who provide consumers and small businesses with free and independent dispute resolution for financial complaints.
Other things to consider when refinancing
When weighing up the pros and cons of refinancing, you may also want to consider:
- You may incur a cost in the form of discharge fees, early termination fees and break costs, and you’ll need to establish what these are and factor them into your decision on whether to refinance or not.
- If you’re refinancing over 80 per cent of your home value, you may have to pay lender’s mortgage insurance, or LMI, for a second time. If this is the case, ask your insurer about a rebate – you certainly won’t get it if you don’t ask.
- If your house or apartment has decreased in value since you bought it and you have a high loan-to-value ratio, or LVR, refinancing may not work for you at this point.
- Some of the lowest interest rates on offer right now are for fixed-rate home loans. However many experts are predicting interest rates have further to fall, so think carefully before locking into a fixed-rate loan.
Keep up with the latest moves in interest rates and the current outlook as well as the very latest deals from lenders with InfoChoice.
The information contained on this web site is general in nature and does not take into account your personal situation. 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.