Thanks to historically low interest rates, many Australians are looking to refinance their mortgage loan to save money. Applying for a refinance of your home loan provides many potential advantages, including:
- Reduces the size of your monthly payment
- Lowers your interest rate for the remaining time left on your mortgage
- Some lenders are willing to consider adjusting home loans for people with poor credit
- Opportunity to consolidate other debt, such as auto loans, credit card bills, and tax debt into one monthly payment at a lower overall interest rate
- Tap into existing equity on a home to make improvements, start an emergency fund, or go on holiday
To achieve the above benefits, it’s important to evaluate your situation and apply for refinancing at the right time. Keep in mind that you must pay several fees to initiate and accept a refinancing loan. These fees are as follows:
- Application fee
- Exit fee to pay off a loan early, normally within the first three to five years
- Settlement fee to pay off your current mortgage
- Valuation fee to have your property assessed by a professional appraiser
- Discharge fee to release you from your current mortgage when the lender doesn’t charge an exit fee
- Break fee if you refinance during the period while you’re paying a fixed interest rate on your mortgage
- Registration and transfer fees
- Lender’s Mortgage Insurance (LMI) if you finance more than 80 percent of your home’s value
When Would It Not Make Sense to Refinance Your Home?
If you were fortunate enough to get a fixed rate on your mortgage for the life of the loan, you would probably save the most money sticking with the lender you have. Some people have a fixed rate for several years that transitions to a higher rate later. In this case, you want to avoid applying for a refinance loan while the fixed rate is in place so you aren’t assessed a large break fee.
Evaluating Your Options
Be sure to ask your lender for exact figures for the above fees so you can weigh what you must pay against your potential savings. Just remember that it may take a year or longer to break-even but that you can expect savings from that point forward. It never hurts to shop around and compare costs and savings to ensure you’re getting the best deal. After all, your current lender isn’t going to offer to lower your interest rate or payment just to be nice.