Signs it’s time to refinance

Signs it's time to refinance

When was the last time you reassessed your mortgage?

Guest Author: Graham Cooke, property expert at Finder

 The home loan market is incredibly competitive. Scores of lenders are vying for customer attention with offers of low interest rates and flexible features. As a borrower, this puts you in an ideal position.

If you’re not getting the best deal from your lender, refinancing can be a great opportunity to save some serious money. But jumping ship can be a daunting process, especially if you’ve never switched before.

If you’re still on the fence about whether to make the move, below are some indicators that now could be a good time to refinance.

Your interest rate isn’t competitive

Thanks to the Reserve Bank, Australia is experiencing record-low interest rates. But not all banks and lenders are coming to the table. While the cash rate has fallen by 75 basis points in 2019 (or 0.75%), big banks have passed on only 57 of those basis points to customers in the form of reduced rates. This means their customers are paying more than they should.

With some variable owner occupier rates now as low as 2.69%, homeowners should ensure their rate is up to scratch. You should generally try and negotiate a lower rate with your lender first. But if they’re unwilling to meet you halfway, it’s time to look elsewhere.

You want to consolidate debt

Finding it difficult to manage personal debt repayments? Some lenders will allow you to consolidate your debts into your home loan. This way you’ll only have one repayment to worry about, rather than several. If managed properly, this can be a highly effective way to pay off your debt quicker.

It pays to reassess your finances

You want more flexibility

Perhaps you’re after a redraw facility or a 100% offset account. If your current lender doesn’t offer these features, it might be worth looking elsewhere for one that does.

You want to fund a home renovation

If the kitchen or bathroom needs a facelift, you’ll most likely need to borrow more money to do so. You normally have the option to increase your existing loan. But this can also be a good opportunity to refinance if you’re unhappy with your current lender.

How much does it cost to refinance?

Cost can play a significant role in determining whether refinancing is worth it. If you decide to switch lenders, you may be faced with the below fees and charges:

    • Mortgage discharge fees. These can range from around $150–$350, depending on your lender.
    • Application fees. These may be charged by your new lender, although they may decide to waive them in a bid to bag your business.
    • Break costs. If you’re currently on a fixed rate loan, your bank may charge you for opting out early. This charge can fluctuate significantly, so check with your lender first.
    • Valuation fee. Your new lender may want to undergo a property valuation to see how much your home is worth. This service fee can be anywhere from $100–$600.

These charges may seem steep initially. But they can end up being small change when you consider the long-term savings potential of a refinance. Make sure you’re across any applicable fees that may arise at either end of the process. This will help you analyse the cost of switching and whether it’s worth it for you.

As with any big decision, it’s important to do your homework beforehand. Every financial situation is different, but refinancing can lead to significant savings if done at the right time.

Graham Cooke is a property expert at Finder