Cost of refinancing
Whether you’ve had your loan for a number of years and your needs have changed, or you just have a sneaking feeling you could get a better deal, a mortgage refinance might be right for you.
But beware - depending on your loan type and your lender's position on refinancing, switching your home loan from one lender to another may come with some costs you may not have foreseen.
What does refinancing mean?
To refinance simply means to replace or restructure your mortgage with a different lender.
In reality, all you’re doing is swapping your current home loan with a new home loan.
- Yes, it’s true that refinancing your loan may offer a range of benefits, but the main reasons most of us decide to switch home loans are a reduced home loan interest rate and improved loan features. Less money on your mortgage, more money in your wallet – that’s the goal here, right?
- If you’re tired of managing multiple debts, refinancing your home loan may offer a solution. If you can consolidate your debts into a single low rate home loan, you can avoid paying multiple sets of fees and interest rates.
How easy is it to refinance?
Sam & Kate Brown, of Vaucluse, were unhappy with their lender, and decided to make the switch and refinance in 2016. The couple wanted a better deal, and after realising they weren’t going to get any movement from their lender, acted upon a recommendation of Sam’s colleagues to shop around.
“Once our application was approved, all we needed to do was sign the loan agreements and mortgage documents, which were brought to us personally, and then the bank went and arranged settlement. Dollar for dollar, our refinancing has been a better outcome for us, because we now get a lower interest rate than was offered to us by our previous bank.”
Sam and Kate, Greater Bank Home Loan customers
Refinancing – When does it make sense?
If you’re considering a refinance home loan, be sure to consider both your reasons and the timing of your decision before you act.
Benefits of refinancing a home loan
A refinance may make sense:
- If your current lender isn’t willing to offer a rate competitive with the market,
- If you’ve experienced recent major changes to your financial situation,
- If you’re after extra money to finance things like a renovation, your kids’ education or a property investment,
- You want to take advantage of a low fixed home loan rate by locking it in.
A refinance may not make as much sense, however:
- If you don’t plan to be in your current property much longer,
- If your current home loan will hit you with high prepayment fees upon exit,
- If your credit history has taken a bettering since your last loan,
- If your income stream will be sporadic over the period of the loan.
Beyond this, it’s important to consider your motivations for refinancing. Sure, we all want the most competitive rate we can get, but over the life of your loan, beyond the headline interest rate, be sure you’re comfortable with your new lender. Look for great service, such as that provided by Greater Bank's mobile lender fleet.
What should you consider?
It’s true that refinancing your home loan may provide potential benefits, but here are some factors you should consider before making the switch:
Often, refinancing your home loan will come with costs you may not have anticipated, such as loan application fees for new loans, mortgage discharge fees, or break costs if your home loan has a fixed interest rate. For this reason, it may be worth your while financially to select your home loan provider wisely, looking for a track record of value and responsible lending rather than chasing lower interest rates year in, year out.
Lenders Mortgage Insurance (LMI)
You may be expected to pay Lenders Mortgage Insurance if you’re looking to borrow (refinance) an amount above 80% of your home’s current market value, regardless of whether you previously paid LMI when first purchasing your home.
If you’ve been tossing up the idea of refinancing your current home loan, it’s vital you arm yourself with as much information as possible.
Take the time to use online tools, like our handy Home Loan Comparison Calculator, to see how your current deal stacks up.
For more information on refinancing, check out our handy How-To Guide, or start a conversation with your friendly, local expert Greater Bank lender today.
If you’re looking to make the switch, take advantage of Greater Bank’s refinance calculator suite:
- Show me my Refinance Borrowing Power with Greater Bank
- How much would my Refinanced Mortgage Repayments be?
- Show me how much Stamp Duty I have to pay
Frequently asked questions
How long should I wait before refinancing a home?
While there's no hard and fast answer to this question that will suit everybody, as a general rule - if you're looking to refinance to save money over the life of your loan, you should wait until the benefits outweigh the costs.
For example, if you're currently on a fixed interest rate, and refinancing will incur break costs that you're just not willing to pay, it may be worthwhile waiting until you're able to switch.