Homeowners on the Sunshine Coast: if you are having difficulties servicing your mortgage monthly repayments, a home loan refinance could be the answer.
Refinancing involves switching to a new lender or loan product to get a better interest rate, reduce your monthly repayments, or access equity in your home.
However, the decision to refinance can be complex, and there are many factors to consider before making the switch. In this blog post, we’ll answer the top 10 questions on home loan refinance, including:
- What is refinance home loan?
- What happens when you refinance a home loan?
- When can you refinance a home loan?
- How much equity do I need to refinance?
- How often can you refinance home loan?
- How long does it take to refinance a home loan?
- What happens to my redraw when I refinance?
- How much does it cost to refinance a home loan?
- What is a home loan refinance cashback?
- What are the risks and potential downsides of home loan refinance?
Refinancing your home loan could potentially save you thousands of dollars in interest payments and help you achieve your financial goals faster. Stay with us to learn more about this mortgage-saving strategy.
The rush to refinance during intense RBA cash rate hikes
Refinancing your home loan can be a gateway to financial flexibility and savings. With the fluctuating economic climate and the recent RBA cash rate hikes, many homeowners are considering refinancing to better manage their finances.
According to the Australian Bureau of Statistics, the total value of external refinancing in March 2023 for housing soared to $21.2 billion in seasonally adjusted terms. This represents a 6.5% increase from the previous month and a staggering 28.5% jump from the same period last year.
This unprecedented spike in refinancing activity highlights the urgency with which homeowners are seeking to secure more favourable interest rates and better loan terms as they navigate the changing economic landscape.
Below are the top 10 questions to ask mortgage broker before you refinance:
1. What is refinance home loan?
Refinancing a home loan involves taking out a new loan to replace an existing one. The new loan is used to pay off the old loan, and the borrower then makes repayments on the new loan according to the agreed terms and conditions.
For example, you may choose to refinance your home loan if you have a variable interest rate that has increased, and you want to switch to a loan with a lower fixed interest rate to reduce monthly repayments. Alternatively, you may choose to refinance to access equity in your property for renovations, debt consolidation, or other expenses.
2. What happens when you refinance a home loan?
The most common outcomes of a home loan refinance are:
- achieving a better interest rate,
- reducing monthly repayments,
- accessing equity in the property,
- changing the loan term (e.g., 30 years to 20 years), or
- change loan features.
Refinancing can involve fees and charges, such as discharge fees, application fees, and valuation fees. Carefully consider the costs and benefits of refinancing and seek professional advice before making any decisions.
3. When can you refinance a home loan?
You can refinance a home loan at any time, but it’s important to consider the costs and benefits of refinancing before making any decisions. Here are some common situations where refinancing may be the most sensible financial strategy for you:
- When interest rates drop: Refinancing your mortgage to take advantage of lower interest rates can result in lower monthly repayments and potentially save you thousands of dollars over the life of the loan.
- When your financial circumstances change: If your financial circumstances change, such as a change in employment or income, refinancing may allow you to adjust your loan repayments to better suit your current situation. For example: in a period of cash rate rise, a home loan refinance to a lower interest rate might help with your increasing monthly repayments.
- When you want to access equity: If your property has increased in value since you took out your original mortgage, refinancing can allow you to access the equity in your property for renovations, investments, or other expenses.
- When you want to consolidate debts: Refinancing can also be an option to consolidate multiple debts into one loan, potentially reducing your overall interest rate and simplifying your repayments.
- When you want to switch to a better loan product: Refinancing can allow you to switch to a loan product with better features, such as a lower interest rate, offset account, or flexible repayment options.
4. How much equity do I need to refinance?
The amount of equity you need to refinance will depend on several factors, including:
- the lender you choose,
- your individual circumstances, and
- the loan-to-value ratio (LVR) that the lender is willing to accept.
Most lenders will require you to have at least 20% property equity to refinance without paying Lenders Mortgage Insurance (LMI). However, some specialist lenders may be willing to accept a lower equity amount.
If you have less than 20% equity in your property, you may still be able to refinance, but you will likely need to pay LMI which could add thousands of dollars more to your upfront costs.
5. How often can you refinance home loan?
There is no set limit on how often you can refinance your home loan. You can refinance your home loan as often as you like, as long as you meet the lender’s eligibility criteria and can demonstrate your ability to repay the new loan.
However, refinancing your home loan too frequently can have a negative impact on your credit score. Each time you apply for credit, including a home loan refinance, the lender will conduct a credit check. This can leave a mark on your credit report.
6. How long does it take to refinance a home loan?
The refinancing process can take anywhere from a few weeks to a few months. Note that the refinancing process can be more complicated than taking out a new loan. This is because it involves transferring your existing loan to a new lender. However, a mortgage broker can help you refinance with the least stress possible.
7. What happens to my redraw when I refinance?
When you refinance your home loan, the balance of your existing loan is paid off by your new loan. This means that any funds you had in your redraw facility will be paid off as well.
In most cases, any funds in your redraw account will be transferred to your new loan account as a part of the refinancing process.
8. How much does it cost to refinance a home loan?
Here are some of the common costs associated with refinancing:
- Application fee: This fee covers the cost of processing your loan application. It can range from a few hundred to several thousand dollars, depending on the lender.
- Valuation fee: Your lender will need to value your property to determine its current market value. The cost of the valuation can range from a few hundred to a few thousand dollars, depending on the type of property and the location.
- Legal fees: You’ll need to pay for legal services to prepare and review your loan documents. This can range from a few hundred to a few thousand dollars, depending on the complexity of your application.
- Discharge fee: Your existing lender may charge a fee to discharge your current loan. This can range from a few hundred to a few thousand dollars, depending on the lender.
- Lenders Mortgage Insurance (LMI): If your new loan has a higher loan-to-value ratio than your previous loan, you may be required to pay LMI. The cost of LMI can vary depending on the size of your loan and the level of risk involved.
9. What is a home loan refinance cashback?
A home loan refinance cashback is a type of incentive or a cash rebate offered by some lenders to encourage borrowers to refinance their home loan with them.
The amount of the cashback can vary, but it’s usually a percentage of the total loan amount. For example, a lender might offer a $2,000 cashback for refinancing a home loan with a minimum loan amount of $250,000.
A home loan refinance cashback can be a useful way to offset some of the costs associated with refinancing.
10. What are the risks and potential downsides of home loan refinance?
While refinancing a home loan can potentially provide benefits, it also comes with some risks and potential downsides to consider:
- You might have to pay fees and charges, including exit fees if you refinance before your fixed rate period ends.
- Applying for a new loan can lead to a hard inquiry on your credit report, which can lower your credit score temporarily.
- If you refinance to a longer loan term, you may end up paying more interest over the life of the loan, even if the interest rate is lower.
- If you refinance to a loan with a variable interest rate, your repayments could increase if interest rates rise.
- You may lose the home loan features that you value with your current home loan if you refinance to a new one
Discover your home loan refinance options with Sunshine Coast Financial Solutions
At Sunshine Coast Financial Solutions, we are here to guide you through the refinancing process and help you make the best decision for your individual circumstances. Feel confident and empowered to make sound financial decisions with our help.
Contact us today to learn more about how we can help you with your home loan refinancing.
