A Guide to Understanding Refinancing

  • Posted 20 Oct

A Guide to Understanding Refinancing

Westpac’s announcement last week that it plans to raise its variable home loan rates has some homeowners thinking about refinancing. Peter White, chief executive of the Finance Brokers Association of Australia, is predicting “at least a couple of rate hikes to come from the banks” over the next 6 to 12 months, meaning that your monthly payments could be going up.

So how do you determine if refinancing is right for you? Let’s look at what do you need to know if decide to refinance your loan.


Know your current rate

Many home owners don’t pay attention to how much they are paying in interest each month. They shop around for the best deal when purchasing a home, but then don’t give it much ongoing thought.

Because a home is a very long-term purchase, home loans may become less competitive over time. Market rates have dropped two and a quarter per cent since 2012, so if you have an older loan you could very well benefit from refinancing.

To find out the current percentage rate you are paying, contact your lender. Ask the bank about today’s rates and compare what you are currently paying.


Shop around

While you want to start your search with your current mortgage holder, nothing says that you can’t switch lenders if you find a better offer elsewhere. Check out rates offered by other institutions and also weigh the advantages and disadvantages of the three types of loans.

  • Variable rate loans – offer the most flexibility, but may mean increased payments if the predictions about rate increases come true.
  • Fixed rate loans – let you know exactly how much you’ll pay every month, providing a sense of stability. The downside is that you may be penalized for early repayment, so you can’t pay off your mortgage faster if you get a bonus or pay rise.
  • Split loans – are hybrid mortgages made up of one variable and one fixed rate loan. This arrangement provides some of the stability of a fixed rate mortgage but lets borrowers benefit from rate decreases.

Don’t get overwhelmed

Many homeowners put off refinancing because they think the process will be just as complicated and intimidating as their original home purchase. But you don’t have to stress. Lenders will be happy to meet with you at your convenience to explain your options. Their goal is to make sure that you are comfortable with the decisions you are making and will be happy with your loan.


Be prepared for the fees involved

Refinancing may save you a significant amount over time, but typically you’ll have to pay some up front fees to make the change. If you have a fixed rate mortgage you may have to pay a break fee or early repayment fee. You may also choose to pay points upfront for a lower rate long term. Find a lender you trust and let her help you explore the possibilities so that you get the best loan for your needs with minimal fees.

If you are considering a home refinance or looking to purchase your next property, contact Australian Credit and Finance to work with out expert lenders. We can help you find the right loan at a great rate.

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