Refinancing has never been a better option than right now. Interest rates have never been lower so, if you haven’t refinanced in awhile you could be paying too much for your home loan. In fact, if you are paying more than 3%, then you are probably paying too much on your mortgage.
[break out table]
Quick guide on your potential savings
|Current home loan amount||$500,000|
|Your current interest rate||3.25%|
|Your current monthly repayment||$2,176|
|New interest rate||2.59% (reduction of 0.66%)|
|New monthly repayment amount||$1,999|
|Savings per month||$177 per month|
|Savings on life of a 30-year loan||$63,720|
Homeowners refinance for many reasons including:
- To get a cheaper interest rate
- To finance a property renovation
- To get a new loan with features that suit your current situation, like an offset account
- To access equity to buy more property, fund renovations or other purchases like a holiday
- To consolidate personal debts, credit cards and car loans into one home loan monthly repayment
But, do you have to switch lenders in order to refinance? Read our guide to find out what your options are when looking to refinance.
Do you have to refinance to get a better deal?
If your interest rate is at the higher end of currently available rates, if the break fees aren’t too high and you are ready to refinance, then asking your current lender is the first step before shopping for a new loan.
If you are simply trying to reduce your monthly repayment amount and save potentially thousands over the life of your loan, a cheaper interest rate with your current lender might be all you need.
The reason for this is, you may not need to fully refinance to achieve your financial goals. You – or we can liaise with your current lender on your behalf – can ask to speak to the retention team. In this phone call, you can:
- Explain how long you have been a customer
- Tell them that you want to know if you can negotiate on their advertised interest rates
- Let them know that if they can’t offer a better deal, you will be looking elsewhere for a better deal with a new lender
In some cases your current lender can match, or beat, the rate they are currently charging for new customers in order to keep you. This rate can be as much as 0.58% difference between new and existing customers, but this doesn’t mean you cannot negotiate for the lower rate.
Now, if your lender will not negotiate and budge on your current interest rate, read on for your other options.
When is it a good idea to refinance with your current lender?
It is usually easier to refinance with the same lender as they have your information, your borrowing history, payment history, income details and other personal information on file already. This can make a time-consuming process much quicker and easier to get approval.
Currently, we know lenders are under pressure with an increase in new home loan applications and refinancing applications so, if your current lender will allow you to refinance and they are the best deal on the market, it makes sense to stay with them to achieve your financial goals.
The other things to consider is the cost of refinancing to another lender. A better interest rate or lower fees with a different lender could be negated by the following potential costs:
- Discharge fees with your current lender
- Early exit fees with your current lender
- Application fees with the new lender (which can range from $0-$700 currently)
- Settlement fees with the new lender
- Valuation fees with the new lender (range of $0-$300 currently)
- Government mortgage discharge fees (usually $175-$325)
- Lender’s Mortgage Insurance premium, if your equity is less than 20%
These fees can total up to around $1000 and may not make sense to your situation, however, that amount may be considerably less than your savings by making the switch to a better deal.
Your current lender may waive these types of fees in order to keep you as a customer to refinance with them, so it is always a good idea to ask what they will do to prevent you from leaving.
When is it best to find a new lender
We can help you find the best deal available, negotiate with your current lender on your behalf and if you decide you want to refinance with a new lender, we can manage that process, too. Talk to us today about your options!
What else do you need to consider?
1. Fixed rate home loan
If your mortgage is locked into an older fixed rate but now, due to the current market, it is higher than interest rates available you will need to check the cost of breaking your fixed rate loan first.
Your current lender will be able to provide you with a break fee figure (which is only valid for one day), and if that is too high then now is not the time to refinance.
2. Loan-to-Value ratio
If your Loan-to-Value ratio (LVR) is above 80%, you will have to pay Lender’s Mortgage Insurance if you switch lenders. Depending on your LVR, this can be very expensive
3. Your current borrowing capacity
If you have a loss of income or unexpected expenses crop up in your life, these factors can affect your borrowing capacity and ability to repay your loan. Changing credit records can also affect your chances of gaining a new loan approval at this time if your credit score has worsened since getting your original loan. These types of factors need to be considered when looking to refinance your mortgage.
Let us help you figure out if refinancing is a good option for you right now – talk to us for free today and let us guide you through everything.