The recent Reserve Bank of Australia changes and interest rate rises might have made you worry about home loan repayments. Credit Union SA lending specialist Lauren shares five reasons to consider refinancing.
September 15, 2022
Commerce
How to know when to refinance
There are many reasons you might want to refinance your home loan.
The friendly folks at Credit Union SA have kindly talked us through how to know if now is the time to speak to your financial representative.
Happy home-owning!
1. You want a lower interest rate
The recent rate changes might be an opportunity to review your home loan and see if refinancing could offer you a lower rate and help you manage your repayments. Even a small reduction to your interest rate could mean more cash in your pocket monthly.
2. You want better features
New features frequently pop up that could give you increased flexibility and let you get more out of your home loan. Switching home loans is your chance to take advantage of things like an extra repayment facility to make additional payments on top of regular ones or having an offset account where the balance in the account reduces the amount of interest you pay on your home loan.
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An average variable rate of 4.5% on a $500,000 loan means monthly repayments of $2,780 over 25 years.
Changing your home loan rate to 3.84% over the same loan term would mean your repayments decrease to $2,596.
That saves you $184 per month, or $55,184 over the 25 years.
3. You want to renovate
When you start the process of refinancing your loan, you might find that your property has increased in value. If so, you may be able to unlock equity in your home. It’s an easy way to fund that open-plan extension or the dream pool you’ve always wanted.
4. You want to consolidate other loans
You can refinance to combine other personal loans and credit cards into a single, manageable and possibly more affordable payment. The rate on a home loan, compared with personal and credit card loans, is usually much lower – so it can make sense to roll everything into one. But be warned, home loans are set over a longer period so you might find you pay more interest in the long run.
5. You want to switch lenders
When it comes to a lender, it’s important to pick one that has your interests top of mind. Whether it’s convenient access, competitive rates, great customer service or something else that makes you feel valued, don’t settle for second best. Be sure to shop around and ask about incentives – like a cashback offer that could sweeten the deal and cover your refinancing costs.
Ask Lauren
Credit Union SA Home Lending Manager Lauren offers some more tips.
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This is general advice only and doesn’t take into account your objectives, financial situation or needs. To find out more specific information visit the Credit Union SA website
CityMag: So, does it cost to refinance?
Lauren: Although there can be lots of benefits to refinancing your home loan, you still need to consider the upfront costs involved to make sure it fits your situation.
While specific ‘exit costs’ were banned in 2011, meaning there are fewer fees for you to worry about, you might still come across other refinancing costs like:
- Discharge and administration fees
- Application fees
- Valuation fees
- Government fees
“Consider your future goals, not just your current” says Lauren. “Don’t let small upfront costs stop you from potential savings in the long term. We can help you work out how much you could save with Credit Union SA.”
When can I refinance?
Technically you can refinance your home loan whenever you want, whether it’s six months or six years after settlement, but it’s about understanding the best time for you and weighing up any pros and cons. Most people think about refinancing if their interest rate isn’t competitive enough, the loan doesn’t suit their needs or if circumstances change in their personal life.
It can be a good idea to review your home loan every couple of years at least, to see if it still fits your needs.
What should I consider before refinancing?
The first thing to do is reflect on your goals – what are you trying to achieve by refinancing? What features do you like about your current loan? That will help you understand what’s important to you with a new loan and lender. For example, would you like a loan with no monthly or annual fees? Do you want an offset account? Or would you prefer a fixed interest rate to provide more certainty with your repayments?
How long does it take to refinance?
The standard refinancing process usually takes up to four weeks, but it will depend on who your current and future lenders are, as different financial institutions have different processes.
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