Things to Consider when Refinancing your Home Loan

What are the benefits of refinancing your Home Loan?

There are many reasons people refinance their home loan. You may be wanting to consolidate your debts into one manageable repayment, you may want to access the equity to purchase an investment property or you may simply want a better interest rate. There a number of things to consider when deciding on a lender and we will go through them now.

What is a Comparison Rate?

A comparison rate is a true reflection of your interest rate once you include things such as annual fees and setup costs. This is one of the most common traps that we see when people are looking to refinance. For example, the lender/broker offers a rate of 3.75%, but once the annual fee and any other ongoing fees associated with the loan are included in the annual interest repayments, the actual rate (comparison rate) is 4.16%. This is definitely one of the most critical things to check before making a decision on which lender to proceed with.

Are there any discharge costs from your existing lender?

Almost every lender will charge a discharge fee for you to refinance your home loan and this fee can range anywhere from $200 through to over $1,000. These fees are generally included in the loan amount and not required to be paid upfront, but needs to be factored in as part of the overall costs. Although this fee is not something that can been eliminated, choosing a lender that offers a cash rebate to cover these expenses is another factor to consider when choosing a lender. Most of the competitive lenders offer between $1200 and $1500 cashback.

Is the annual fee worth the money you pay to have the "additional" facilities?

Some lenders offer packages that provide an offset account, a credit card and a discounted interest rate. They convince you to think that you are getting a great rate, but is it as good as it seems? There are lenders that offer basic (no frill) loans with redraw facilities which is practically the same thing, and you get a lower rate without an annual fee. Instead of having a separate offset account which is linked to your home loan, you make additional repayments directly into your home loan which reduces your interest and when you want access to the extra funds, you simply complete a transfer online and you have access to it right away.

What costs are involved with refinancing your home loan to a new lender?

Before making a decision about refinancing your home loan, you should be aware of any costs associated with switching lenders. Although there may not be any costs charged by the new lender, there may be other costs charged from your existing lender to discharge your loan? There are also government fees that will be charged every time you change lenders. The most common fees charged are discharge of mortgage and registration of mortgage and these fees vary depending on which state the property is located.

Should I Get a Fixed or Variable Rate?

This is probably one of the most difficult questions to answer and one which is heavily dependant of your circumstances and future plans. There are pro's and cons to both options which we will now run through to give you a better understanding and assist you to make an informative decision about the best structure for you.

Variable Loans

Variable loans provide a rate which fluctuates and can change on a day to day basis. One major reason for changes taking place is the monthly RBA meetings (Reserve Bank Of Australia). The RBA meets on the first Tuesday of every month and decides whether they are going to increase/decrease or leave the cash rate on hold, which will then give banks the opportunity to pass on the change to their customers. In terms of making additional payments and having immediate access to the funds, variable is definitely the way to go as fixed loan has limitations on being able to do this. You are also unable to make any changes to the loan terms such as increasing your lending.

Fixed Rates

Fixed rates have two main benefits and they are to provide certainty on your repayments and most of the time, provide a lower rate to that of the variable. Depending on your circumstances, fixed rates have a few limitations that need to be considered. Most banks provide the ability to make a certain amount of extra repayments (normally $10K per annum) which cannot be accessed again until the end of the fixed term. For example, if you have a 3 year fixed rate, you can pay up to $30K, limited at $10K per annum. Once you're locked in and settle your loan, you cannot make any changes to the loan, otherwise there could be quite sizeable breaking costs.

Summing Things Up

As you can see, there are many things that need to be considered when refinancing your home loan which could make your decision a worthwhile change or a nightmare that ends up costing you more than it's worth. Using our mortgage brokers will save you time and money and take the hard work out of your next home loan. Our service is free to you as our fees are covered by the lender that you proceed with and the fee is not built into your loan, it is paid directly by the lender and is stipulated in the paperwork we provide to you before submitting your loan.

Contact us today to start saving!

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