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6 reasons to refinance

24/07/2020

We explore the most common reasons to make the switch.

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You may have heard refinancing described as ‘switching’ or ‘transferring’ your loan to a new lender. To refinance you’re essentially paying off the existing loan and creating a brand new loan at another institution. Creating a new loan means you can look at changing things like the term, interest rate, product type and amount borrowed against your property.

Generally, refinancing is a personal decision that is often motivated by a change in your financial circumstances. Perhaps you’re thinking about renovating your home or maybe you’re keen to pay off or consolidate some existing debts. You may want to change your loan term or repayment style to reduce your minimum monthly repayments. If you have a fixed rate loan, it may be close to maturity or you may be aware that your loan is no longer competitive and that you’re able to get a much better deal elsewhere.

Often, refinancing can be a smart way to shave years off a home loan and better manage money and/or debts. Here are some common reasons for refinancing:

  1. To get a better home loan product. Refinancing may be a good option if you’re currently paying for features you don’t use on the loan. Alternatively, you may want to upgrade to a home loan product that offers a redraw facility, a 100% interest offset account, possibly even discounts or fee waivers.

  2. To take advantage of a competitive market. Home loan offers change all the time and refinancing can be a smart way to secure a more competitive rate. Often discounted rates are for new loans only, so refinancing your loan to another lender may give you access to exclusive deals.

  3. To utilise your equity. If you have built up equity by paying down your loan or increasing the value of your property, you may be able to find a better deal. Lenders often give lower interest rates to customers with more equity.

  4. Your circumstances may have changed. Have you reviewed your financial situation and the market lately? Perhaps you have a fixed rate loan that is due to roll? Take the opportunity to review your financial needs. This may include re-fixing your loan, taking up a variable option or splitting your loan. Refinancing gives you the opportunity to change your loan to suit your current circumstances.

  5. To borrow more money. If you need money to renovate your home or upgrade your car, you could refinance your mortgage to another institution and borrow additional funds against your property.

  6. To consolidate debt. Home loan interest rates are typically much lower than those you’ll pay on a credit card or personal loan, so consolidating these could be an easy way to reduce the interest you owe. If you have several debts, with some charging higher interest rates than others, you may be able to consolidate those debts within your mortgage by refinancing and borrowing additional funds.

So, is refinancing difficult?

It depends. Lenders have strict criteria to adhere to for all new loans, including refinances, and you may need to provide detailed documentation. This is even more likely if you’re self-employed rather than in full-time employment.

However, once you’ve chosen the right home loan for your needs and have been approved for refinancing, the rest of the process is usually all handled by the lender or your mortgage broker.

Terms, conditions, fees, charges and credit criteria apply. This article is intended to provide general information of an educational nature only. This information has been prepared without taking into account your objectives, financial situation or needs. Therefore, before acting on this information, you should consider its appropriateness having regard to these matters and the product terms and conditions. Information in this article is current as at the date of publication.

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Refinancing to a better rate could help you save on your home loan. T&Cs apply.

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