Should you refinance your current home loan or stick to your existing one?

In the past, Banks were able to offer generous refinancing options,  unfortunately changes to borrowing criteria have made it more difficult for some in recent times. It is however still possible for most Aussie borrowers to access a new loan with a lower rate, better terms or more suitable features.

When should you refinance

  • Your lender’s rate is no longer competitive and lower interest deals are available
  • The value of your property has increased, and you want to access your equity
  • A major change has occurred in your financial or personal situation
  • You need money to pay for something major like a home renovation, a child’s education, or another property investment
  • You want to switch to a fixed rate at an opportune time
  • You’ve started accumulating large credit card debts and want to consolidate

 

When you shouldn’t refinance

  • You might not own the property for much longer
  • Your property value has decreased
  • When your current loan is fixed (as prepayment penalties can be high on existing home loans)
  • If your credit history has declined due to outstanding debts (meaning you’re less likely to get a good rate)
  • You no longer have a reliable source of income

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Don’t refinance just because you’re looking for a lower interest rate. You need to consider the entire lifespan of the loan, not just the headline interest rate.
There are miscellaneous fees to consider when switching to another lender. These include the entry, exit, application, valuation, stamp duty fees, and Lenders Mortgage Insurance (required if you don’t hold at least 20{2f5ac156b00eba21775ae628bbcd1455392fa5a5d6d32389211b9514333d32d6} equity).

It is ideal to consider the term of the loan – and whether it will be fixed interest rate or variable interest rate – as this can drastically impact your long-term financial obligations.

Another factor is the security of your income. You need to consider how secure your job is or if you can manage the home loan on one wage instead of two.

It’s also worth talking to your existing lender when considering refinancing. Some lenders might do anything to keep you, such as waiving fees and lowering interest rates, rather than letting you go to a competitor.

Considering refinancing your home loan? Here is a great comparison site which will help in your final decision.

 

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