Refinance Calculator
Reasons to refinance
Perks of refinancing your home loan
Refinancing can help you get ahead on your loan and finances.
- Find a better interest rate to save on your repayments.
- Simplify any debt repayments by consolidating into your mortgage.
- Free up funds for a renovation, new car, or dream holiday
- Shake up your cashflow by extending your loan term.
8 reasons to refinance your home loan.
Refinancing might seem like a hassle, but it can be a beneficial move for your home loan.
When you first take out a home loan, chances are it won’t be the best loan for you for the entirety of your homeowning years. This is where refinancing comes in.
Refinancing you home loan every couple of years can make sure it’s always suited to your financial situation and needs.
Here are 8 reasons why you might refinance your home loan.
How do banks determine how much you can borrow?
Banks have different lending standards, so the process they use to determine your borrowing capacity will likely differ.
Part of the reason for these different processes and standards is the risk appetite of the lender. This may be influenced by the level of insurance the lender has. Some insurers of banks may push for stricter lending criteria whereas others may be more relaxed.
These differences mean that you might have higher borrowing power with one bank than another.
1. Secure a lower interest rate
Your interest rate can have a significant impact on how much you pay on your mortgage.
Even a difference in interest rates of 0.5% can mean thousands of dollars saved.
Once you’ve had your home loan for a few years, it’s common to find you’re paying a loyalty tax.
This is when lenders charge existing customers higher interest rates than new customers.
It can pay to compare your rate to the rate new customers are getting and chat to your lender about reducing your rate.
However, if they won’t budge, it could be best to refinance to a more competitive rate with a different lender.
You might also want to switch a lower interest rate if your fixed interest rate period ends, and you roll onto a high revert rate. A revert rate is the variable interest rate your loan will automatically switch to if you don’t do anything.
It’s important to remember that your home loan is more than the interest rate. A mortgage with another lender might have a lower rate, but they could charge more in fees. Ensure you review all aspects of the loan before you refinance.
2. Add or remove home loan features
It’s likely that your personal circumstances will change over the course of your home loan, and you may need to alter your loan accordingly.
You might start off with an offset account that you pay for in annual fees but find you don’t use it enough to reap the benefits.
Or you might be coming to the end of your fixed term, and you realise you’d like the flexibility to make unlimited extra repayments and pool them in a redraw facility.
Whatever your needs, you could refinance to alter your home loan’s features.
3. Pay less in fees
Are home loan fees becoming a pain in your hip pocket?
Refinancing to a low fee or fee free home loan could be the answer.
Be sure to check whether the home loan you want to switch to doesn’t make up for having low fees by charging a high interest rate.
4. Tap into your equity
If you want to access your home equity, refinancing is the way to do it.
Your equity is the portion of your home that you own outright. You can calculate your equity by subtracting your remaining home loan balance from your home’s current value.
You can use your equity to fund other purchases. For example, you might access your equity to:
- Pay for home renovations.
- Put down a deposit on an investment property.
- Invest your money in shares, for example.
- Make another large purchase, like a car or an overseas holiday.
There are a few ways you can structure a home equity loan.
5. Change to a fixed rate, variable rate or split rate loan
Changing the type of interest rate attached to your home loan can be done by refinancing.
Sometimes, the type of interest rate you settle on when you first take out your home loan isn’t suited to you anymore.
Maybe you started out with a variable interest rate but now you’re craving the stability set repayments that comes with a fixed rate.
On the other hand, maybe you started with a fixed rate but would like to access the home loan features that are typically only available on variable rate home loans.
Or, perhaps you’d like to make the best of both worlds by refinancing to a split loan. With a split loan, a portion of your interest rate is fixed while the other portion is variable.
6. Switch lenders
You might want to refinance if your lender’s service isn’t quite up to scratch.
For example, you might not be satisfied due to:
- Poor customer service
- Inflexible repayment methods
- Inadequate mobile app or in-person services
- Ethical reasons – for example, you may not agree with where your lender invests their money.
If you decide to refinance because of issues with your lender, ensure you take all the aspects of your new loan into account, not just the lender.
7. Consolidate debt
Refinancing and consolidating debt can be a smart option for borrowers with other debts like personal loans, car loans and credit cards.
Debt consolidation involves combining other debts with your home loan. This way, you only make one monthly repayment instead of several.
Since home loan interest rates are typically lower than interest rates on other types of debt, you’ll usually pay a lower interest rate on consolidated debt.
8. Reduce or extend your home loan term
Sometimes, your circumstances mean that your home loan term isn’t right for you anymore. You can extend or reduce your home loan term by refinancing.
Your income might have increased since you first took out your home loan, so now you’re able to make higher monthly repayments.
Refinancing to shorten your loan term can make sure you don’t incur fees for paying off your loan early (for example, if you’re on a fixed rate home loan).
On the other hand, maybe you need to lower your monthly home loan repayments.
Refinancing to a longer loan term can help with this, however you will pay more in total over the course of your loan.
What do I need to be eligible to refinance my home loan?
If you’re thinking of refinancing your mortgage, you’ll need to make sure you’re eligible to do so.
To be eligible for refinancing, you’ll typically need:
- At least 20% equity in your home – if you have less, you may need to pay Lenders Mortgage Insurance (LMI)
- Proof of your income, assets, expenses and any other debts
- Current home loan documentation
- A good credit score and reliable home loan repayment history.