Category: House & Home
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Sub category: Loan
26 July 2021

Time to refinance: here are some things to keep in mind

If you’ve had a home loan for a while, then you might have wondered if there’s a better deal out there. Or, if your home has gone up in value, you may have even considered accessing your equity to renovate or buy an investment property. Refinancing could be a way for savvy homeowners to save money and get ahead. But before you approach a lender, here are some key things you should keep in mind.

First things first

All right, now that you know what to watch out for, refinancing could make a lot of sense for you. We’ve got an article that goes deeper into the subject, but here are a few reasons why you might consider refinancing: it’s been a while since you reviewed your home loan; you’ve had a change in lifestyle; you’ve worked out you want to use your equity in your home; you’re looking to consolidate your debts; or you’ve had life… happen and faced an unexpected event or financial change.

If you’re looking for a lower rate

The conventional wisdom is that if you haven’t reviewed your loan in the last 2-3 years it could be worth shopping around to see if you can get a better rate. But you should consider the term of your current loan versus your refinanced loan. If the new, refinanced loan is for a significantly longer term than what’s left on your current loan, you might only be extending your repayments and could end up paying more in interest over the life of your loan, even though you have a lower rate.

So try to make sure the new loan is for roughly for the same term as the time left on your current loan, and make sure you do the numbers before you sign on the dotted line.

If you want to lower your monthly repayment

You might be looking to refinance to lower those monthly repayments. This could be a wise choice if you’re looking to rearrange your finances or boost your budget (for whatever reason).

When you extend the term of your loan to try and reduce your weekly repayments, be aware that you may end up paying more interest over the term of the loan, even with a lower interest rate. A longer term could mean more interest, basically. But, if the loan allows, you could make regular extra repayments – when you have money available – to repay the loan faster which could help make up the difference.

If you’re not sure it’s the right time to refinance

It’s important to be in a stable financial position when you refinance your loan. So be honest with yourself about where you stand before doing it. For some, it doesn’t quite make sense to switch right now. If any of the following situations sound like yours, take a breath – you may choose to wait.

  • Your property has decreased in value to a point where the equity won‘t cover a 20% deposit on a new loan amount. This means your loan-to-value ratio (LVR) will be higher than 80%, so you may have to pay lenders mortgage insurance (LMI). If you do have to pay LMI It might be better off waiting until the market rises again.
  • Your credit history has taken a hit due to missed repayments, forgotten bills or outstanding debts. Large credit card debts or limits could also affect your history. Before refinancing, consider taking steps to pay down your credit card and loans as much as possible, and think about lowering your credit card limits (especially if you’re not using them).
  • If you are a few years into a home loan, be wary of refinancing to a loan with a longer term than you have left on your current home loan, as it could end up costing you more.
  • Your current home loan, or part of it, is a fixed rate loan. Breaking a fixed rate loan could mean that you’ll pay Break cost fees and they could be expensive, so the costs may outweigh the savings. Do the numbers, then you’re golden.

Keep costs in mind

Refinancing might come with exit and entry costs, application charges, valuations, possible stamp duty and legal fees, transfer fees and with some lenders, mortgage insurance if you don’t hold that 20% equity. And if you have a fixed interest rate loan, you might need to factor in Break cost fees.

All these upfront costs need thinking about because they could eat up the savings you plan to make by refinancing. So, factor in that you might not break even for a year, or even longer. Maybe do a cost analysis or crunch the numbers with our buying costs calculator. Find your break-even point (i.e., the sweet spot where your savings outstrip the costs) and aim to keep your new loan for this period, and perhaps beyond.

 

See how much you could save

Want to see the difference refinancing with an ING home loan could make? Head to our refinancing page and use our refinance calculator to find a loan that works for you.

 

Buying costs calculator

The results from this calculator should be used as an indication only. Results do not represent either quotes or pre-qualifications for the product. Individual institutions apply different formulas. Information such as interest rates quoted and default figures used in the assumptions are subject to change. Calculator © InfoChoice 2019.

Refinance calculator

The results of the refinance calculator are an approximate guide and should not be used as exact values for financial planning purposes. The results do not constitute an offer to provide credit and do not imply that credit is available. The formulae used within this calculator may change at any time without notice. Applications are subject to ING’s usual credit assessment. Fees and charges apply.

The information is current as at publication. Any advice on this website does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. Deposit products, savings products, credit card and home loan products are issued by ING, a business name of ING Bank (Australia) Limited ABN 24 000 893 292, AFSL and Australian Credit Licence 229823. ING Living Super (which is part of the ING Superannuation Fund ABN 13 355 603 448) is issued by Diversa Trustees Limited ABN 49 006 421 638, AFSL 235153 RSE L0000635. The insurance cover offered by ING Living Super is provided by Metlife Insurance Limited ABN 75 004 274 882, AFSL 238096. ING Insurance is issued by Auto & General Insurance Company Limited (AGIC) ABN 42 111 586 353 AFSL Licence No 285571 as insurer. It is distributed by Auto & General Services Pty Ltd (AGS) ABN 61 003 617 909 AFSL 241411 and by ING as an Authorised Representative AR 1247634 of AGS. All applications for credit are subject to ING's credit approval criteria, and fees and charges apply. You should consider the relevant Product Disclosure Statement, Terms and Conditions, Fees and Limits Schedule, Financial Services Guide, Key Facts Sheet and Credit Guide available at ing.com.au when deciding whether to acquire, or to continue to hold, a product. Before interacting with us via our social media platforms, please take a minute to familiarise yourself with our Social Media User Terms https://www.ing.com.au/pdf/Social_Media_User_Terms.pdf.

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