Category: House & Home
Chapter Select
Sub category: Loan
17 May 2019

Refinancing explained

Years ago, taking out a home loan meant keeping that loan for the next 25 to 30 years. But today things have changed, with ABS figures stating that in 2017, over 200,000 Australians refinanced their homes, with either their existing lender or a new one.

So what does it mean and why are so many people refinancing?

When you refinance, you’re taking your existing home loan and replacing it, or paying it off, with a new home loan. Usually it’s to get a better deal – but it can also be because of changes in personal situations, to consolidate debt, or to access equity people have in their home.

Why regularly review your home loan?

It’s a good idea to look at your home loan every three to five years or so. If you’ve had your home loan for a number of years, your financial needs and goals may have changed and there could be a better rate out there. Refinancing might be a good way for homeowners to save on repayments, get ahead and better manage money.

But you need to be clear about why your current home loan isn’t working and what you want from your new loan. Then you need to do your homework and assess your current loan. Because as much as refinancing might seem like  a must-do, you need to see if it will actually save you money, or cost you in the long run. Read our article, Before you refinance do your homework, to find out more about the red flags.

The first step – comparing loans

Start by checking the rates and costs of your current home loan. Check what your exit costs would be, especially if you have a fixed rate or split loan. It’s also worthwhile looking at other loans that your current lender can offer you. Often, your lender will be keen to keep you as a customer and help you refinance with them.

Even if your current lender comes to the party, you should still compare home loans from other lenders too. When you do, it’s important to look at more than just interest rates. You should look at things like application fees, and ongoing fees and charges, and check whether it has the features you want, like redraw, additional repayments and offset for instance.  Make sure that you wouldn’t be paying for any features that you won’t use. Also beware of honeymoon rates that some lenders use to attract customers, that then revert to a higher than normal rate after a certain period.

Another thing to be careful of is to avoid sending home loan applications to lots of lenders. It can reduce your credit history or worthiness, because your unfulfilled applications may show up as credit refusals. Choose a lender, which could include your current one, that meets your needs and go with them. 

Calculate the costs of refinancing

Refinancing could save you money over the long-term, but there are lots of upfront costs and fees you may need to cough up for. You need to weigh up these costs against your ongoing savings and find out where your breakeven point is (i.e. how many years until the savings you make equal your upfront costs?). You then need to be convinced you’ll be keeping the home loan for that long. Here are some of the fees and costs you may need to pay if you were to refinance:

  • Discharge fees
  • Loan establishment and application fees for the new loan
  • Settlement and handling fees, including legal fees
  • Valuation costs (if you plan to access the equity in your home)
  • Additional mortgage stamp duty (if you increase your current loan)
  • Mortgage registration (to let the State Titles Office know you’ve changed either your home loan provider or type of home loan)
  • The time costs and inconvenience of changing lenders – resetting your transaction accounts and direct debits if using offset, and changing bank account details.

Chat with a home loan specialist today

You don’t have to go through the process alone. Our home loan specialists are here to help. Whether you’re new to ING, or a current customer, we can talk you through your options and choices – obligation free. If you’re in the process of comparing loans we also offer competitive rates with features like no ongoing monthly or transactional fees, unlimited extra repayments, offset facilities and redraw.

To talk to an ING home loan specialist simply call 1800 100 258, 8am – 8pm AEST, Monday to Friday or 9am – 5pm AEST on Saturday.

 

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 Home and Contents 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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