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.
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