Your friends down the road did it last year, and that couple from soccer before that. Even your parents did it a couple of years ago. And those lifestyle shows are always discussing it.
We’re talking about refinancing. A relatively new phenomenon born from the removal of exit fees, new players in the home loan market and historically low rates. Even with the stricter criteria on lending after the Banking Royal Commission, there is still a wide choice of low rates available.
Let’s look at some of the main reasons homeowners refinance and see if the time is right for you to join them.
Lower interest rate
The most popular reason for switching loans is to get a better home loan rate. Lenders are constantly vying for business and some may reserve their best deals for new customers. If you’ve had your loan for a number of years, chances are there’s a better deal out there.
The general rule of thumb is that if you can reduce your current interest rate by between 0.75% to 1%, then it usually makes sense to refinance.
A key thing to note is that for homeowners who are 10 years or more into their home loan, refinancing could actually extend the number of years of your debt and you could end up paying more in interest, even though you have a lower rate. If you’re going to refinance to a lower rate, try and make it for the same number of years as you have left on your current loan.
Put your equity to work for you
With the increase in property prices over the last 10 to 25 years, there are many Australian home owners sitting on equity pots of gold.
There are a couple of advantages to this when it comes to refinancing. Firstly, some lenders offer better rates to borrowers with equity, as they have more security behind them.
Secondly, if you do have enough equity in your home, it gives you the opportunity to refinance and add to the size of your loan, if you can afford the extra repayments. For more information on equity and how to access it read our article, the power of equity.
A fixed rate loan is coming to an end
In Australia it’s common for homeowners to have a fixed rate term on their home loan. Sometimes it can be part of a split loan structure (i.e. part of the loan is fixed and part is variable).
When your fixed rate period ends, your loan will revert back to your lender’s standard variable rate. This is a good time to refinance and compare rates, either with your current lender or a competitor. Whether you want to switch to a variable rate loan, or stay with a fixed rate, it pays to shop around at this point, rather than just roll the loan over
Your personal situation has changed
Life changes constantly. Refinancing can help you change with it. There are many different situations that may lead you to want to review your home loan.
You may be having a child, for instance, or had a change in your work situation. If this is the case, you may be thinking about ways to reduce your repayments – with a lower rate over a longer term for example. But also be aware that the lender will take into consideration your current income and job status. If you are a one income couple for a period, or have gone from full time to self-employed or contract work, it may not be the right time to refinance.
Conversely, you may have got a new job with a step-up in salary or a pay rise. This puts you in the ideal situation to demand more from your home loan lender, ensure you’re getting the best rate and perhaps borrow more.
You’re not satisfied with your current lender or your home loan
If your lender has fallen short of expectations, it may be time to move on by refinancing with another lender. You may feel you’ve been treated unfairly, or your lender doesn’t provide enough customer support.
Or, you may not be happy with your home loan. As you get older and have more cash and assets behind you, things like offset facilities and redraw start to have a strong appeal. While not a reason to refinance by themselves, combine these features with a lower rate loan and it does make a convincing reason to switch products, if not lenders.
Need a helping hand?
If you’re looking to refinance, talk to our home loan specialists before you do. They can explain the process and all your options and choices. There are no obligations, our experts are here to help first and foremost. If you decide you’re ready to start comparing loans, do keep ING in mind. We also offer competitive rates with features like no ongoing monthly or transactional fees, unlimited extra repayments on variable loans, offset facilities and redraw. You should also seek tax advice before you act.
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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