What to Look for When Refinancing Your Home Loan?
Refinancing home loans is a great opportunity to access more favourable terms that can help you pay off your home. There are lots of things to look for when refinancing, including:
Jump to a section in the guide:
- Interest rates
- Refinancing fees
- Loan term
- Loan features
- Property value
- Break fees with existing lenders
- Eligibility
- Incentives
1. Interest rates
Your new home loan should have a better interest rate than the one offered by your current lender. Interest rates vary widely depending on the terms of the loan, including its length, the value of the property and your eligibility. Be mindful of introductory interest rates that change after a certain period.
2. Refinancing fees
Refinancing home loans comes with various fees. This includes application fees, break fees, legal fees and home valuation fees. By doing your homework, you can mitigate the cost of refinancing your home loan. Make sure that the amount you save by refinancing is enough to cover upfront and ongoing fees.
3. Loan Term
The length of your loan has a big impact on how much interest you pay over its lifetime. When you refinance, you can usually opt to shorten or lengthen the loan term. Longer loan terms have lower monthly repayments, but you pay more interest in the long term. Shorter loan terms have higher repayments, but you could pay your mortgage off much sooner.
4. Loan Features
Home loan products each come with their own features. Things like additional repayments, offset accounts, redraw facilities and fixed vs variable interest rates. You need to assess these features and refinance to a home loan that will support your goals.
5. Property Value
Lenders consider the value of your property when assessing loan applications. Changes in property values can affect your ability to refinance, and it may make the new loan more or less favourable than your existing deal.
6. Break Fees with Existing Lender
Many lenders charge a fee to release you from your mortgage early. Break costs and penalties are designed to protect the lender from losing money when a customer refinances. Talk to your mortgage broker to find out what fees you’ll be charged if you refinance your home loan.
7. Eligibility
Although you were successfully approved for your current home loan, lenders still want to check your eligibility when refinancing. Credit scores, income, savings and expenses all change over time, and this can affect your eligibility. Your mortgage broker can check your eligibility and help you refinance to a home loan that suits your current situation.
8. Incentives
While your current lender won’t want to lose your business, your new lender may offer incentives to refinance. These incentives include things like useful loan features, introductory interest rates and cash rebates that can offset the upfront costs of refinancing.
