Your guide to home loan refinancing

You’ve heard about home loan refinancing – on the radio on the way to work, grabbing a latte with co-workers, from your friends…even Mum has probably nagged you about it. But what is it? Why should you bother? We’ve put together a guide to home loan refinancing to put the savings back in to your mortgage and take the headache out of refinancing.

For sale: 8 Isabella Way, Bowral, NSW

What is home loan refinancing?

Refinancing is when another lender or bank takes on your loan by paying out the loan in full to your original bank or lender (sometimes this happens under the same lender, but the outcome is the same). People refinance for a lot of different reasons, but there’s one big one you shouldn’t ignore.

Why should I refinance my mortgage?

If there’s one reason you should refinance your mortgage, it’s this: your bottom line. Reviewing your current mortgage or refinancing it with another lender could save you thousands of dollars over the course of your home loan repayments. But there are many other little reasons that apply too. These could be:

• You’ve had a change in personal circumstances.
• You need to move due to a new job, get closer to family or just want a change of scenery.
• You want to renovate.
• You want to invest in shares or property.
• You need to consolidate some debts.
• A baby or two are on the way and you need to upgrade to something bigger.
• You’re retired and looking to downsize.

Of course, every refinancing experience isn’t a one-size fits all proposition.

What should I look out for?

Whenever you buy something – especially from a bank or a financier – you need to be on the lookout for that nasty four-letter ‘F’ word: fees.

Some lenders may charge you an exit fee for terminating your mortgage with them and going somewhere else. Your new lender might charge you fees for establishing a new account and mortgage with them, too! You need to factor this in to your calculations.

On top of that, if you’re refinancing more than 80 per cent of your property’s value, you may need to pay Lender’s Mortgage Insurance (more like insurance for the bank in case you don’t pay them back!). You could also be on the hook for more stamp duty – so watch out for that.

A great tip is to look for comparison rates rather than interest rates, as comparison rates give you an idea of how much you’ll pay with most fees and charges included.

Refinancing is a simple process, as your new lender or bank will take care of all the behind-the-scenes financial arrangements and paperwork. This puts you on track to achieving your financial and property goals sooner rather than later.