When To Consider Refinancing Your Home Loan

By Matthew Kenworthy | Refinancing

Refinancing your home loan is when you change your home loan and lender to better suit your current circumstances.

Your current home loan may have suited you when you first bought your home. It’s highly like though that your personal situation has changed since that time. It’s important to make sure your loan product & lender meets your current financial needs.

Reasons to Consider Refinancing Your Home Loan

If you’re considering refinancing your home loan it’s important to make sure you’re doing it for the right reasons.

Depending on your reasons for refinancing you may find a different loan product from your current lender may solve your problems.

Better Interest Rate

The most common reason is looking for a better interest rate. If changing for a variable rate home loan it’s important to consider that lenders rates will fluctuate over time. The attractive rate that the new lender is offering may end up being higher than a rate your current lender offers in the future.

If you’re seeking a better interest rate it’s important to know that the lowest interest rates are offered to the most attractive borrowers from the lenders perspective. The two biggest factors that make borrowers attractive to lenders are:

  • Low Loan-to-Valuation Ratio (LVR): The lowest rates are available to borrowers who have good equity (at least 20%, although the more the better) in their homes.
  • Higher loan amounts: The more you’re borrowing, the lower the interest rates banks are willing to offer.

Given that there are some fees for switching lenders the difference in interest rate should be large enough to cover the costs. As a general rule on an average sized mortgage you’d want to save at less 0.2% to make it worthwhile (this number will be smaller on larger home loans).

A knowledgeable mortgage broker will be able to show you a range of low rate products that may be suitable for your needs.

Bad Service Experience

Customers wanting a good service experience doesn’t just apply to cafes and restaurants!

I’ve met quite a few people who have wanted to change lenders due to a number of reasons relating to service including:

  • Bad customer service at the local branch.
  • Banks failing to follow their instructions.
  • Inadequate internet banking facilities.

An excellent mortgage broker will be able to assist with the first two points.

Debt Consolidation

Debt consolidation involves combining other personal debts such as car loans and credits cards into your home loan. This can have a significant effect on reducing outgoing cash flow however there are a number of factors to consider when doing this.

You may wish to read more about debt consolidation.

Taking Cash Out

Refinancing your home loan can allow for the opportunity to take some cash out against your property for a wide variety of personal uses. This may include a family holiday, purchasing a car or doing some home improvements.

By increasing your loan or taking cash out you’ll either be increasing your repayments or extending your loan term which may delay achieving your financial goals.

Your current lender should also be able to cash out. However it’s an ideal time to consider investigating your options.

Fixing Up Loan Structures

This is particularly relevant to investors. An inadequate loan structure with multiple cross-collateralised properties can hinder future borrowing potential.

If you’re seeking to build a property portfolio it’s important to be working with an experienced mortgage broker who understands how to maximise your borrowing capacity.

##Final Thoughts on Refinancing

Shopping for a lower interest rate shouldn’t be the sole consideration when refinancing (unless your current interest rate is excessively high).

The refinancing costs involved with switching and most importantly your future goals and objectives need to be taken into account.

If you’re interested in finding out more about refinancing please get in contact with us. We can provide advice at no charge and at no obligation.

About the Author

Matthew Kenworthy is a specialist in all aspects of Residential & Commercial Finance. He can assist all borrowers from First Home Buyers to Property Investors with Large Portfolios.