Debbie Shankar - 31 May, 2018

How to Know When to Refinance Your Home Loan

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Refinancing your home loan could be a great way to save money, but you need to time it right. You may decide to refinance as many times as you want, but knowing when to refinance your home loan is tricky. Firstly, while refinancing your home loan could save money, making the change needs precise timing. Move too soon, and you may incur more expense. Secondly, understanding your personal and financial situation and knowing the costs involved with refinancing, could also help you avoid costly mistakes. Let’s look at 7 ways to help you to decide if making a move to refinance is right for you now.

Review Your Existing Loan

According to the Australian Competition & Consumer Commission (ACCC), some banks and lenders are overcharging their existing home loan borrowers by around 32 basis points more than new borrowers. Plus, the findings also reveal that there is little to no competition between these lenders to offer borrowers better rates. These standards have led to the ACCC chairman suggesting that Australians can benefit by switching lenders.

When it comes to home loans, many of us have a set and forget mindset. We take out a mortgage and then simply pay it off, rather than comparing it regularly to see if we’re still getting a competitive deal. Most financial experts advise that all home loan holders review their current interest rate a least once every two years to ensure they are still getting a competitive deal and that the loan still meets their needs. So, if your home loan is two or more years old, isn’t it about time you reviewed your current loan to see if now is the right time for you to refinance?

Mortgage research and rating groups suggest that there is over a 2.34% difference between the lowest and highest home loan interest rates on their databases. So, now could be the right time to review your home loan. Get started by comparing home loan rates.

Understand Early Repayment Penalties

Many mortgages have penalty clauses in them, which means that you’ll incur a fee if you pay off the mortgage early. So, be sure to find out the following;

  • If this fee exists in your home loan contract.
  • If the penalty is a fixed fee or a percentage of the loan balance.
  • How much it will cost.

Because the amount of the fee could be large, it is necessary to examine your contract before proceeding with refinancing. Otherwise, it could end up costing you more than it is worth, which is a sign that now is not the time to refinance.

Consider Your Home Value

Over the years, the value of your home may have decreased. While you may have had a lot of equity a year or two ago, you may not have enough now to handle the new loan. For instance, if your home has decreased in value, then:

  • You may no longer have enough equity in it to get a new mortgage.
  • You may need to pay LMI.
  • Your payments could be higher than they were before.

If the above statements are true, you may need to reconsider when to refinance.

Check Current Interest Rates

Interest rates need to be lower than they are on your current mortgage. Many financial experts recommend that you discover when to refinance:

  • By waiting until the rate is at least one-percentage point below what you have now.
  • By keeping your eye on interest rate trends.
  • By watching to see when rates are at their lowest.

Compare your interest rate today.


Evaluate Your Future

Knowing how long you intend to live in your home will also help determine when to refinance. So, ask yourself:

  • Do you plan to stay in your home for at least 5-years? As moving before this point will destroy any savings you might have gained by refinancing.
  • Are your family and home large enough?

If you’ve said yes to these questions, then you know that now could be an appropriate time to refinance.

Consider Shortening the Term

Many people think about getting a shorter term on their new mortgage. This option looks attractive, and it will help some people because it can:

  • Reduce the interest rate.
  • Reduce the amount of interest paid over the life of the mortgage.

When deciding on a time to refinance, you need to determine if you can afford the increased cost. If not, it may be best to shelve the plan.

Determine Overall Costs and Compare

Before buying into what appears to be an attractive deal on a home loan, take some time to calculate the total costs involved in refinancing your loan. Understanding these figures will help you to decide when to refinance your home loan. When crunching the numbers, it’s important to consider:

  • All fees.
  • Early repayment penalties.
  • Getting a re-assessment on the house, and more.

Do you know when to refinance your home loan? To answer this question, carefully consider your situation and then compare your existing home loan with other options on the market. Overall, selecting the right loan could potentially save you thousands and give you more financial freedom.

Are you looking to refinance your home loan and want to know if now is the right time for you? Then contact eChoice, our brokers can help you decide when to refinance your home loan. They can help you understand the charges involved and have in-depth knowledge across a range of lenders with access to 100’s of products. So, we’ll find you a competitive mortgage.
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