Refinancing

Refinancing involves replacing your existing loan with a new one, typically with different terms or a different lender. It can be an effective way to adapt your finances to changing circumstances or to take advantage of more favourable loan conditions. Here’s a look at what refinancing entails and what you should consider.

Why Consider Refinancing?

There are several reasons you might contemplate refinancing your loan:

• Lower Interest Rates: If interest rates have dropped since you took out your original loan, refinancing could secure you a lower rate, potentially saving you money on interest payments.
• Different Loan Features: You might want a loan with features that better suit your current needs, such as an offset account, redraw facility, or the ability to make extra repayments without penalty.
• Consolidating Debts: Refinancing can allow you to consolidate multiple debts into a single loan, simplifying your repayments and potentially lowering the overall interest rate.
• Equity Access: You may wish to access the equity in your property for renovations, investment, or other personal use.
• Fixed Period Ending: If the fixed-rate period on your current loan is ending, you might refinance to another fixed-rate loan to provide certainty in your repayments, or switch to a variable rate for more flexibility.

Process of Refinancing

The refinancing process typically follows these steps:

1. Assessment: Evaluate your current loan terms, interest rate, and features, and assess your financial goals to determine if refinancing is appropriate for you.
2. Research: Compare different loans and lenders to find a new loan that fits your needs. Look at interest rates, fees, loan features, and flexibility.
3. Application: Once you’ve selected a loan, you’ll need to apply with the new lender. This involves providing financial information and documentation similar to what you provided for your original loan.
4. Valuation: The new lender will likely require a valuation of your property to determine its current value and the loan-to-value ratio.
5. Approval and Settlement: If your application is successful, the new loan will be approved. The settlement process involves the new lender paying out your old loan, after which you’ll start making repayments on the new loan.

Costs of Refinancing

Refinancing can come with costs, including:

• Exit Fees: Some loans have fees for paying out the loan early, particularly if you have a fixed-rate loan.
• Establishment Fees: The new loan may have upfront fees for setting up the loan.
• Break Costs: If you’re refinancing during a fixed-rate period, there may be significant costs to ‘break’ the fixed term.
• Lenders Mortgage Insurance (LMI): If the amount you are refinancing is more than 80% of the property’s value, you may need to pay LMI again.
• Valuation Fees: Often the fees for performing the valuation are passed on by the lender.
• Ongoing Fees: Be aware of any ongoing fees that may be associated with the new loan.

Considerations

When refinancing, it’s important to weigh the potential benefits against the costs and consider how the new loan aligns with your long-term financial objectives. Refinancing can offer financial benefits, but it’s important to understand the terms and conditions of your new loan and to consider the overall impact on your financial position.

That’s why we’re here to help. We’ll work with you to explore your options, find what is suitable and how to get to settlement.

Contact us today for an obligation free discussion.