Refinancing your home loan: how does it work?
Australian interest rates are on the rise. In fact, the cash rate (set by the Reserve Bank) has now reached a seven-year high. Many previously comfortable homeowners may be feeling the pinch as lenders pass through that cash rate in the form of higher interest rates.
Why do higher interest rates matter?
In plain terms, higher interest rates can mean higher repayments. And though serviceability buffers will generally be built into your current loan by your lender, you could still find a better rate out there. Refinancing your home loan could be one way to find a better rate.
What is refinancing a home loan?
Refinancing is the act of taking out a new loan to replace your old one. Typically, a homeowner would do this to get additional benefits, like a lower interest rate or a more convenient repayment plan.
How does refinancing work?
Refinancing gives you the opportunity to choose a completely different home loan product from your existing one. Whilst this can happen with the same lender, it is common to refinance with a different provider altogether.
With interest rates on the rise, there’s never been a better time for Australians to make the switch to a home loan with a better interest rate, or make the move to a new provider with fewer fees. You can refinance your home loan with your current bank, a new lender, or even a mortgage broker.
Why refinance a home loan?
When it comes to switching home loans, some of the most common reasons are to:
Save money with a better interest rate or reduced fees
Refinancing is an opportunity to potentially find a home loan with a more suitable interest rate. A lower interest rate could save you thousands of dollars over the lifetime of the loan.
Shorten (or extend) your loan term
Switching to a home loan with a lower interest rate can also potentially help you pay off your mortgage sooner. If you get a better interest rate and continue to make the same repayments as you did on your old loan, you’ll shorten the term of your loan.
Consolidate multiple debts into one, easy-to-pay package
If you have more than one loan, refinancing can make it easier to manage your repayments. Depending on your circumstances, you may be able to consolidate your multiple debts into one home loan.
Free up equity for a new purchase
By refinancing your home loan, you can gain access to your home equity. This may be appealing if you are looking to renovate your home, purchase a second property or go on a dream holiday.
Stabilise household cash flow
If your existing home loan is on a variable rate, refinancing to a fixed rate can give you certainty when it comes to your repayments. This can help you manage expenses and stabilise your budget.
Things to consider before you refinance
Of course, refinancing will not always be the best option. You should consider whether there will be fees for entering a new mortgage or if you might have to pay Lenders Mortgage Insurance (if you have less than 20% equity in your property, you may have to pay LMI).
Make sure the benefits such as the refinance rates outweigh any additional fees you’ll have to pay to complete the process. It’s important to do your research so as you are not caught off guard by application fees, valuation fees, registration fees or settlement fees. You also need
to understand your long-term financial situation and whether or not changing repayments will suit your needs.
You can use our home loan calculators to estimate your repayments when you refinance your home loan to BOQ.
As always, one of the BOQ team can help you understand the big picture if you’re thinking about refinancing.
Who should refinance their home loan?
In our current economic situation, refinancing your home loan could be a great option for anyone looking for a better deal. But refinancing correctly isn’t as easy as choosing the most attractive mortgage. You should seek out financial advice, weigh up all your options and be absolutely certain that you’re ready to commit. Our step-by-step guide to Refinancing Your Home Loan will help you walk through the process of determining whether refinancing is right for you.
How to refinance a home loan
Compared to the first time you applied for your home loan, refinancing your home loan is a much easier process.
1. Assess your financial situation
Before you start the refinancing process, take stock of your current financial situation. Consider whether the timing is right and if you are in a position to comfortably pay back your loan.
2. Compare home loan options
There are a few decisions you will need to make, such as whether you would like a home loan on a fixed or variable rate. Look carefully at the products and services attached to each option. For example, can you link your new home loan to an offset account or redraw facility?
3. Submit your application
Once you have chosen, you simply need to begin the home loan application online. If you prefer, you can also visit your local branch or give us a call to chat to our home loan experts.
4. Complete your documentation
Once the initial request is submitted, we’ll guide you through the necessary information and documentation you need to complete your loan application.
5. If approved, sign your new loan contract
Upon approval of your loan, we’ll notify your current lender that you will be discharging your home loan.
Refinancing with BOQ
When you refinance with BOQ, our team of home loan experts will go above and beyond to help you through the whole process.. Find out more below.
