When you refinance your home loan, it’s often to get a better interest rate than you have on your current home loan, in order to pay off your mortgage faster like a pro. This will save money in the long term.
Whether you’re an owner/occupier or own an investment property, you can refinance through the same lender or switch to a different credit provider altogether. Because lenders don’t tend to reward their customers for loyalty, it’s worth noting that you typically get a better rate when you go to a new lender.
It’s like that time you bought the Nokia 3210 and it was the coolest phone around and you could play Snake all day… but then the iPhone came out and you realised that was a much better option. Well, there could now be better home loan options out there so why not see how much you could be saving by starting your refinance today?
You’re probably thinking, ok – that makes sense. But how do i do it, and what do i need to know before I get started?
You can do this online now with just a few bits of information to get you started.
Get a better rate and lower your monthly repayments
One of the main reasons homeowners choose to refinance is to get a lower interest rate. You might have purchased your home years ago at a high rate of interest, but rates have since gone down and lenders don’t automatically pass on the decreases.
With the recent RBA announcement keeping the cash rate on hold at a historic low of 0.25%, now is the time to consider a refinance. But never assume this means you automatically have your lender’s best rate, or the best rate on the market for that matter.
To give you an idea, lenders on our panel are offering super competitive rates currently starting from 2.19%1 (2.61% comparison rate)2.
You can easily find out if you could be on a better rate and saving money by refinancing in just a few minutes, simply by using our refinance calculator.
Access the cash (equity) in your home
Some people refinance to access the cash (equity) in their home in order to pay for something big like renovations, a holiday to Maui or their daughter’s second wedding. We’ve had customers who’ve used equity to pay off their solar installation and buy a car – the possibilities are endless and your broker can help you work out if it is the right option for you.
This works well if you have several debts on top of your home loan, such as a personal loan, car loan and credit card debt. Pulling these debts into a new home loan allows you to enjoy the lower interest rate that most home loans offer compared to other forms of credit. (Credit card debt could be between 9.99% p.a. and 21.99% p.a., for example.)
It does, however, mean paying interest on the combined balance for a longer period of time (the length of the home loan), so it’s important to make additional repayments to pay off the enlarged loan sooner – or pay off a big chunk when you can.
Adjust the loan term
Sometimes people change to a longer loan term, even if it’s only in the short term. That sounds confusing. What we mean is they may come into some unexpected financial difficulty, such as a family member getting sick and needing medical treatment; or a car accident that leads to someone being out of work for a period of time. In these situations, the person needs to minimise their repayments and it’s worth it to them to restructure their loan over a longer term (and pay a bit more interest in the long run) to alleviate financial stress.
Switch from a variable rate to a fixed one, or vice versa
Lenders tend to automatically put those who’ve been on fixed rates onto a higher rate at the end of their fixed term. This is a good time to switch to take charge and switch to another rate. Or perhaps you’ve been on a variable rate but want to take advantage of low interest rates so you want to switch to a fixed rate. Refinancing enables you to do these things.
We often get asked a range of questions from our customers about refinancing, so we’ve collated some of the most asked one, below.
How soon can you refinance your mortgage?
To be honest, you can review your mortgage at any time, however be aware that you may have to pay break costs (exit fees) if you have a fixed rate. Break costs are fees charged by lenders when you pay out a fixed rate loan before the fixed rate term has expired. Depending on where you are in the fixed term, the break fees could be anywhere from a few hundred dollars to a few thousand.
But, sometimes the savings you’ll make on a loan will negate the break costs. Kaching! UNO can help you work out whether it’s a good idea to refinance at this time and which lenders might suit your financial situation. If you’re on a variable rate, you won’t have to pay any break costs although for all refinances you may have to pay a settlement fee or other costs.. At one time you did: what used to be called the deferred establishment fee (penalty rate) was abolished by the government in 2011, so now you cannot be charged a penalty if you decide to switch rates while on a variable rate.
Is it bad to refinance?
Refinancing to take cash out, otherwise known as borrowing against the equity in your home, may be a way to pay for renovations or a new car, or something else that you want or need. And this is totally normal if you’re into that sort of thing. What you should be aware of however, is that by refinancing to take cash out of your home, you’re essentially digging into the money that’s already been paid off your loan – and increasing your loan amount again.
- The pros – Research commissioned by UNO and conducted by Core Data found those who shop around for a better rate actually pay an average of 30 basis points less on their home loan than those who stick to their current interest rate. AND, these people, unloyal as they are, ultimately end up paying less over the life of the loan – $1,092 per year on a $500,000 mortgage or $32,760 over a 30-year loan.
- The cons- If you’ve been paying off a 30-year loan term for five years, for example, and make the decision to refinance, once you extract the equity in your home, you may be forced to increase your loan term to 30 years once again. So, if you’re refinancing to pay for a chin lift or that $7000 Balmain leather biker jacket, maybe think twice. No amount of money is going to make you look like Chris Hemsworth. Plus, if you continue to withdraw more equity to pay for more things, you may find yourself never paying off the principal part of your loan and will end up working ‘til you die. Not ideal.
How much does it cost to refinance a home loan?
It usually doesn’t cost you anything. However, you may have to pay some settlement costs to register the mortgage under the new lender and you may have to pay break costs if you are on a fixed term loan. UNO can help you work out whether it’s worth switching home loans while on a fixed rate – or better to wait ‘til the end of the fixed rate term.
Plus, some lenders are offering generous cash backs so take this in account when calculating costs of refinancing.
What are today’s mortgage rates?
Interest rates fluctuate in line with the official cash rate set by the Reserve Bank of Australia (RBA), which is used as a basis. When the RBA moves interest rates up, many banks and lenders choose to move their interest rates up too. When the RBA moves interest rates down, many banks and lenders will also drop their rates – although they don’t have to.
The other thing to know is that not all rates are available to all people. The rate you can apply for will depend on how much equity you have in your home, your credit score and employment situation, among other things. Because rates change, it’s a good idea to keep an eye on them and see if the rate you’re currently on is still the best one for your situation.
Which documents are needed to refinance a home mortgage?
When you refinance a home loan, you’ll be expected to provide proof of income and expenses (e.g. payslips, bank statements) and photo ID.
You’ll also need to show you have a good history of making payments (most lenders will want to see at least 6 months of solid payment history). This will also help you qualify for a better rate.
How many times can you refinance your mortgage?
There is no limit to how many times you can refinance, although you will face a small impact on your credit score each time you do. Note that enquiring about a loan through UNO doesn’t show up on your credit report. How good is that?!
Can refinancing hurt your credit?
Yes it can. When you apply for any loan, your lender will check your credit score. Having a lender review your credit history shows up in your report as a credit enquiry – however when UNO makes the enquiry to begin with, it will not show up on your credit report.
Each new enquiry by a lender can knock a few points off your credit score. That’s why we reckon it pays to find a refinance deal with us – because we can search for the right option from our panel of more than 20 lenders, so you don’t have to shop around making loads of enquiries with every bank in town.
If you’re ready to jump in and start the process of refinancing you can do this all online.