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Back in the day, taking out a home loan meant keeping that loan for the next 25 to 30 years. But times have changed. So now that refinancing is more and more common, what’s it all about – and why are so many people doing it?
Basically, refinancing is taking your existing home loan and replacing it with a new, and different loan, all with the aim of getting a better deal than the one you have. It could also be a savvy response to life’s changes, like an updated relationship status, a decision to consolidate debt, or even the choice to use the equity in your home for another of your goals.
Why and when would I want to refinance my home loan?
Every two to three years or so, it could be a good idea to check in on your loan. After all, your financial needs and goals may have changed during this time and there could be a better rate out there to help you reach them. By potentially saving on repayments, and getting ahead with better money management, you could be a step closer to reaching those dreams.
Be clear about why your current home loan isn’t working and think about what you want from your new loan. 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.
What am I looking for when I’m comparing loans?
Look at the rates, costs and features of your current home loan. Check what your exit costs would be if you decided to make a change. But before you do, look at other options your current lender can offer you. Often, your lender will be keen to keep you as a customer and help you refinance with them.
Whether or not your current lender comes to the party with other options for you, you should look around and compare home loans from other lenders too. When you do, it’s important to look at more than interest rates. Suss out things like application fees, ongoing fees and charges, and check whether the loan has the features you want – whether that’s redraw, additional repayments or an offset function. Make sure that you won’t be getting, or paying for, any features that you won’t use. Keep a lookout for so-called honeymoon rates that some lenders use to attract customers that quickly revert to a higher than normal rate after a certain period.
Another watch-out: avoid sending home loan applications to lots of lenders. It could affect your credit history because unfulfilled applications may show up as a credit enquiry with an unknown decision. What it boils down to is choosing a lender – whether it’s your current one or a new one – that meets your needs and going with them.
Are there any fees or other costs I need to consider?
Refinancing could save you money over the long-term, but there are upfront costs and fees to keep in mind first. Weigh up these costs against your future savings and find out where your break-even point is – that is, how many years until the savings you make cover these upfront costs. You need to know you’ll be keeping the home loan long enough to strike that balance, or even get ahead.
Here are some of the fees and costs to keep an eye out for:
- Break costs of an existing fixed rate loan
- Discharge fees
- Loan establishment and application fees for the new loan
- Settlement and handling fees, including legal fees
- Valuation costs
- Mortgage registration (to let your state’s Titles Office know you’ve changed your home loan provider or type of home loan)
- The time costs and inconvenience of changing lenders
However these are only some of the fees and costs that could apply. For a more accurate picture of the fees and costs that might apply to your refinance, take a good read of the product terms and conditions and fee schedules.
Ready to find out more about refinancing?
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 – obligation free. If you’re currently comparing loans we offer loans with competitive rates and a variety of features.
To talk to an ING home loan specialist simply call 1800 100 258, 8am – 8pm AEST on Monday to Friday or 9am – 5pm AEST on Saturday.
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