Wondering whether you should refinance your home loan or continue with your existing one?
Quite a conundrum, isn’t it?
Well, most experts do suggest that you check how your rate stacks up against the market average every six months or so. However, just because a better rate is available does not mean you would necessarily save money by refinancing your home loan. So, when is the right time to switch home loans, you may wonder. The answer, as usual, is not quite straightforward, and depends upon a number of factors.
First, ask yourself why you want to refinance your home loan? Refinancing could make sense, if:
- Your lender’s rate is not competitive enough compared to the market average
- You want to switch to a fixed rate before interest rates hikes in the future
- You have several debts that you want to consolidate with your home loan
- You want to tap into your home equity to pay for a major event such as renovation or another property investment
However, it may not be a good idea to switch home loans if:
- You intend to sell off the property in the near future
- You have a low credit source or have recently switched jobs or do not have a fixed source of income
- You don’t have much balance outstanding on your home loan and don’t want to tap into the equity
- The total cost of refinancing your home loan is much more than the savings you are going to pocket
If you are convinced that refinancing is the right option for you, there are several banks and non-bank lenders offering competitive refinance options you can compare online. We recommend that you check rates from various lenders and also take into account the applicable fees and refinancing charges to find the best possible deal for your situation.
You can calculate your breakeven point by dividing the cost of refinancing with your monthly savings (the amount by which your monthly repayment would be reduced if you switch home loans). The result of this equation represents the number of months it would take you to recoup your refinancing costs and start building your savings effectively. While calculating the costs, do include the entry and exit fees, any clawback fee, application fee, stamp duty, and other ongoing charges.
Rod saves money on his home loan
Rod, a satisfied HashChing customer, is currently saving $5,000 a year after he reduced his mortgage interest rate to 3.99 per cent per annum from 4.85 per cent per annum by switching lenders.
Rod came across HashChing on Facebook for the first time. Tired of the lax service offered by his bank, he called up HashChing and was immediately put in touch with Richard, a HashChing partner broker, who helped Rod score a better deal within two months. In addition, his annual package fee reduced to $120 from $395, saving him an additional $275 each year.
Steve, a mortgage broker explains that “refinancing can save you money if done right. In addition to the interest rate, it is vital to consider the overall effect of refinancing on the life of your loan. Generally speaking, by switching to a lower rate and a shorter term, your repayment amount might increase slightly, but you would save more money in interest by reducing the years from the term. However, if you refinance a 30-year mortgage in the third year to a lower rate but borrow the new loan for 30 years, you are resetting the clock on your mortgage and might end up paying more interest over the extra years.”
3 steps to refinance your home loan
- Step 1: Visit HashChing to compare mortgage deals
HashChing advertises home loan deals from over 80 lenders across Australia. All the rates are broker pre-negotiated, which means they could be as much as one per cent lower than the market rate. All the fees and details are mentioned transparently with each deal. You can filter home loans according to amount, type, and area, and compare up to three home loans in a single window at a time.
- Step 2: Fill-up a Quick Contact Form
Once you identify the right deal, click on the ‘Get Me This Deal’ button to fill up a quick contact form so that we can put the relevant mortgage broker in touch with you.
- Step 3: Sit Back and Relax!
Yes, that’s it. A verified mortgage broker will get in touch with you to assess your financial situation and negotiate the best possible deal for you. Your broker will also help you complete the refinance process by preparing and lodging the paperwork on your behalf, ensuring you have more time for things you enjoy doing.
Have queries? Get in touch with a mortgage broker to have your home loan queries resolved online, free of cost. Don’t worry; your information is safe with us. You will not receive any unwanted calls or messages.
By Vidhu Bajaj,
HashChing Content Writer