Source: https://www.afr.com/wealth/personal-finance/what-to-do-when-your-fixed-rate-ends-20220530-p5apnw
If your current home loan is no longer benefiting you, you may be thinking of switching to a more competitive one.
Arguably, your mortgage is your biggest expense over your lifetime and you’ll want to make sure you pay great attention to every small detail when the time comes to choose your new loan option.
There are a number of factors in the refinancing process that impact not only the cost of switching, but also the interest rate the new lender will offer you. It may even impact whether you’ll gain loan approval or not in the first place.
How does refinancing work?
Refinancing, sometimes called as switching, is when you change your current home loan to one that better fits your needs. These are usually done to get a more competitive rate, get better features, or if you are in need of better customer experience. Refinancing lets you change lenders in the middle of the loan term and could potentially reduce the amount of interest rate you pay in thousands of dollars over the life of the loan.
What are your refinancing goals?
Before you begin the whole process of refinancing, review your current home loan to see what isn’t working and list down what you are looking for in a new home loan.
This could mean:
- You’re looking for a lower interest rate
- You’d like fewer fees
- You want more flexibility, such as being able to make extra repayments
- Your current loan lacks helpful features, like an offset account or redraw facility
- You want a new fixed rate or a competitive variable rate
- You want the option to split your home loan rate
- You’re looking for the ability to access equity in your property
By understanding your refinancing goals, you’ll be able to better choose your next home loan.
What are the 9 things to check before switching home loans?
- Are you able to make unlimited repayments, or unlimited redraws on any additional repayments? Take note that variable rates are currently on the rise. See if you can afford repayments if the interest rates rise by up to three percentage points.
- Are you able to link to an offset account to lessen the balance where you are charged interest on?
- Take a look at the fees and charges. Check for how long they will take to recoup in lower interest repayments.
- Get a detailed breakdown before agreeing to the loan. This includes all application, settlement, and discharge fees.
- Expect to pay between $300 and $500 in government mortgage fees. These vary between states.
- Keep a lookout for cashback deals. Make sure you are not paying more in interest only because of a one-off perk.
- Check your options. Compare loan features with different competitors and make sure you are getting a competitive rate.
- In case of unexpected events, is the lender flexible or do they provide options? For example, some lenders offer short-term repayment “holidays”. As an option, does the lender accept reduced payments instead of full suspensions, or a mix of both?
- Make sure the lender has plenty of support options available, such as call centres, a branch network or internet access.
With the home loan market constantly changing, there is a chance that you may no longer have the most suitable home loan.
Regularly reviewing your home loan and seeing what other products are available is a great way to save more money and even pay off your home loan sooner.
