Refinancing is something many homeowners hear about but don’t always fully understand. You might have friends or family who’ve refinanced to get a better deal, pay off their loan faster, or free up cash, but how do you know if it’s right for you?
What is refinancing?
Refinancing simply means replacing your current home loan with a new one, either with the same lender or a different one.
Think of it like trading in your old car for a newer model. The new car might have better fuel efficiency, smoother handling, and more features. Similarly, a new loan might offer a lower interest rate, better features, or terms that better fit your current needs.
There are a few reasons why someone might choose to refinance:
- To get a lower interest rate: This can help you save on repayments and potentially pay off your loan sooner.
- To access equity: If your home’s value has gone up, you might be able to tap into the equity which is the portion of your home you own outright, calculated as the difference between your home’s current value and what you still owe on your loan. You can use this equity to fund renovations, consolidate debt, or cover other big expenses.
- To change your loan type or features: Maybe you want to switch from a variable to a fixed rate, or get new loan features such as an offset account or redraw facility.
- To consolidate debts: You can roll high-interest debts like credit cards or personal loans into your home loan, simplifying your finances and potentially saving on interest.
Read our article ‘What is debt consolidation’ to learn more.
When refinancing makes sense
Refinancing can suit a wide range of homeowners and is often a smart move for anyone who wants to make their money work harder. While there’s no one perfect time to refinance, there are a few signs it could be worth a closer look.
- You haven’t reviewed your loan in a while.
Home loan rates and products change all the time so if it’s been a few years since you last checked your loan, it could be worth seeing whether your rate is still competitive or if a different loan could suit you better. - Interest rates have moved.
If rates have risen or fallen significantly, it can be a good time to review your loan. Even a small change in your interest rate could make a noticeable difference to your repayments over time. - Your financial situation has changed.
Maybe you’ve received a pay rise, started a family, or moved to a single income. Refinancing can help you adjust your loan so it fits better with your current circumstances. - Your home’s value has gone up.
If your property has increased in value, you may have built up equity you can use for renovations, investments, or other major expenses such as a holiday or even school fees. - You’d like more flexibility or features.
Some loans may not include features like an offset account, redraw facility, or flexible repayment options. Refinancing could help you change your loan type to access these and help you manage your money more effectively.
What to consider before refinancing
While refinancing can provide a number of benefits, understanding when it might not be suitable is just as important. A few things to consider are:
- Fees and costs
Refinancing can come with costs such as discharge fees from your current lender, application fees for the new loan, and, if you’re on a fixed rate, potential break costs. It’s important to do the math. Sometimes the long-term savings outweigh the upfront costs, but not always. A good rule of thumb is that refinancing makes sense if you’ll recover those costs within the first year or two of the new loan. - Loan term reset
When you refinance, your new loan usually starts fresh, often with another 25 or 30 year term. That can lower your repayments, but it might also mean paying more interest over time.
If your goal is to save money long-term, you could ask for a shorter loan term or continue paying your old repayment amount to stay ahead. - Your credit history
Applying for a refinance can temporarily impact your credit score. If your credit score has recently dropped or if you anticipate needing credit for other purposes soon, reconsider the timing of a refinance. If you’re shopping around for a new home loan, it’s best to compare loans carefully before submitting applications, and only apply once you’re confident you’ve found the right one. - Equity and property value
Your home’s value affects how much you can borrow. If property prices have fallen or you have less than 20% equity, you might have to pay Lenders Mortgage Insurance (LMI) again which can add thousands to your costs. - Future plans
If you plan to sell your home soon or are unsure about your future plans, it might not make sense to refinance. The benefits of refinancing usually come from staying in the new loan for a few years.
If you’re thinking about refinancing, here are a few steps to get you started:
- Check your current loan details by looking at your interest rate, loan balance, repayment amount, and remaining term.
- Compare home loans options, but don’t just focus on the rate. Consider features, flexibility, and fees.
Learn more about our range of award-winning home loans. - Talk to a home lending consultant who can help you compare your options, crunch the numbers, and handle the paperwork.
Find your local Auswide Bank lending consultant.
Refinancing can be a great way to save money, access funds, or make your loan work better for your lifestyle. But like any big financial decision, it’s worth taking the time to understand your options and get advice if you need it.
A quick review of your home loan every year or two could help you stay on track and make sure you’re not paying more than you need to.
Talk to an Auswide Bank lending consultant
If you’re thinking about refinancing, our home lending consultants can help you find the right fit for your goals. They’ll take the time to understand your situation, explain your options and guide you through the process from start to finish.
Contact your local branch or find your local lending consultant to see if refinancing could work for you.
This is not an offer to lend - approval is subject to credit assessment criteria. Terms, conditions, fees & charges apply - full details on application. Prior to entering into a credit contract with us you should read our Credit Guide. This information provides general advice only. We do not provide advice about this product based on any consideration of your personal objectives, needs or circumstances.
