Refinance
What is Home Loan Refinancing?
Refinancing is when you take a new home loan to pay out your existing home loan. You can do this with your current bank or move your home loan to a new bank.
Home loan refinance is a useful financial tool that can help homeowners improve their overall financial situation; often because there has been a change in their personal or financial situation. Generally, homeowners should consider refinancing every few years to ensure they get a better deal.
Most banks often offer refinancing cash-back rewards and waiving application fees for new home loan customers. In addition, it’s no more a secret that many banks offer more competitive interest rates to new home loan customers than existing customers.
What are some of the benefits of refinancing?
Reducing your monthly repayments.
Getting a more competitive interest rate to reduce the amount/size of your home loan
Introductory rate or/ fixed-rate period on your loan expiring to get a better interest rate can reduce the size of your loan.
Consolidating Debt, e.g. credit cards, car loans, personal loans, or tax debt into your home loan paying those off at a lower interest rate.
Get Cash-Out; by accessing your home equity to finance renovations, buy an investment property, or for a holiday.
Improving the terms of your loan such as access to offset accounts, redraw, split loans, or extra repayments combined with lower interest rates. Refinancing to a loan product that fits your current situation and lifestyle to help with your plan for a future goal.
What are the costs/fees to refinance?
Normally, the costs are minimal compared to the costs you may potentially save on interest and other fees over the life of your loan period. Keep in mind some of these fees may be waived or there may be a promotion going on and you may be eligible to get a cashback/rebate. Some of the fees include below:
Borrowing cost: a new bank may charge a series of fees upfront.
Loan application fee, when applying for a new home loan
Valuation fee: a new lender may charge a fee to have a property value.
Settlement fee: a new lender may charge to pay out your loan.
Discharge fee: generally, around $150- $300 usually charge to release you from the mortgage
Break Cost: this fee applies when you refinance within the fixed period of your loan. Your current lender will generally calculate this fee base on the remaining time on your fixed interest rate.
Lender mortgage insurance: a one-off fee if your loan is more than 80% of the current valuation of the property.
What is the ideal position to refinance?
Ideally you will have min. 20% or more equity of your current property value: You should have less than 80% (LVR) loan on your current home loan to refinance. How to calculate LVR? Loan To Value Ratio (LVR) % = (Total Loan/Current Property Value) x100
Refinance when you’re currently on a variable rate.
Not Ideal to refinance when on a fixed-interest rate due to break costs that may incur. However, please discuss this with your mortgage advisor to see if it is worth it long term.
Refinance from low doc to full doc mortgage
Refinance from non-lender to bank/lender for a better rate
Refinance out of a bad credit loan; you must have paid all defaults and have a clear credit file.
Can I refinance for an investment property?
Yes, however, your eligibility may vary on different lenders. You can use your equity to buy an investment property without having to sell your home or your investment property. Many investors are required to cash out to add value by renovating the existing portfolio. Furthermore, this is one of the strategies investor use to grow their investment portfolio without the need to gather a deposit.
What is Equity and how does it work?
Equity is the spread or difference between your property’s current valuation and the amount of your current loan. Generally speaking; equity increases when property value appreciates and when you paid/ reduce the balance of your loan. Some of the common strategies investors use to increase their property value (manufacturing its growth) by renovations or plan sub-division.
What common mistake to be aware of when refinancing?
There are a few things to look out for when refinancing.
Paying loan mortgage insurance (LMI) twice when your loan is still above 80% of the current property value.
Overlooking costs when refinancing such as break cost when on fixed interest.
Making too many applications with many lenders, can give a negative impact on your credit file score. Making more than 3 inquiries within a year can limit the number of lenders you can refinance to.
How do I Start the process to Refinance?
Think about why you would like to refinance, this could access a better interest rate or reduce the monthly repayment, or access equity from property, or holiday etc. Determine your big-picture goal to your why.
Know your costs and figure out how much equity you have.
Compare and shop around with multiple lenders through a mortgage advisor. At Aud Finance Advisor we have access to compare hundreds of different loan products from over 30+ Australian lenders. As such we can help you find a great deal and a competitive rate based on your needs and situation.
We will then recommend products that are best suitable for your needs, objective, and situation. Once you have decided on a product you can sit back and relax we take care of all things from applications, valuations, approval, and until settlements.
On completion; some lenders will send welcome packs.
Disclaimer: The information provided in this fact sheet is not legal, taxation or financial planning advice. It has been prepared without considering your specific needs, objectives and personal financial situation. Before acting on this information, we recommend that you consider carefully if it is appropriate for your needs, objectives and personal financial situation. All loan products are subject to lender criteria and approval. Fees, terms and conditions apply.