Buying a house is one of the most important financial decisions we’ll make – not to mention an extremely costly one. When it comes to getting a home loan, it shouldn’t be a ‘set and forget’ activity. Revisiting your mortgage every few years, or as you go through big life changes, is a perfectly healthy thing to do and could save you money on your repayments.
Unsure how to review your home loan? We’ve unpacked what you should consider when refinancing your home.
What does refinancing mean?
Inovayt Finance Broker, Chris Thompson, says, “When you are refinancing, you are trading your current mortgage in for a new one. The process for refinancing involves your new bank paying out your existing loan, then transferring you to one of their loans packages.” If you’re swapping to a different type of home loan, changing your repayments, or splitting and combining loans – all while remaining with the same lender – this can be called a loan transfer or variation.
When should you consider refinancing your home?
There are many different reasons you should consider refinancing your home loan, but it’s something you should evaluate every few years to make sure you’re getting the best deal based on your current circumstance.
As most, loan terms are 30 years and there are bound to be some changes to your life during this period. Chris discusses the right period to look at refinancing and highlights, “You don’t necessarily need to refinance but you should review your home loan (which may result in refinancing) every 2-3 years. This is a long time, so circumstances can change.”
Some common reasons people look to refinance their home include:
• Their financial circumstances have changed. They may have received a raise, got a new job, or potentially even lost their job or cut back on the hours they’re working.
• Their financial goals may have changed from when they first purchased the house.
• They might want to refinance to renovate. This is one of the more common reasons people choose to refinance, as renovating adds more value to your property.
• They may want to start a family, or their living expenses might have increased.
• They may have taken out other loans or credit cards.
Life is full of constant changes, so it only makes sense that your home loan is flexible enough to meet these changes. Whatever situation arises, adapting your home loan to meet these changes should be seen as a positive experience. It is important to consider changes from your current lender, as it’s normal for the market to change, interest rates to fluctuate and fees to increase. New products are also constantly being developed to attract buyers so these packages might be better suited to you. Just like friendships, sometimes we simply outgrow our previous home loan – it’s normal!
Should I do it myself or speak to someone?
When it comes to refinancing your home loan, do some research yourself to get an idea of what’s on offer. However, speaking to your broker will allow you to talk through all loans on offer in the current market. Chris says, “When you speak with a broker, the broker will sit down with you and help you understand your goals and objectives for refinancing. Is your purpose for refinancing to help you save money or are you trying to buy a car or investment property? These are all things we will help you with.”
While it may feel easier to talk directly to a bank, this isn’t always the case. Banks tend to have a biased view of their product and will work to sell you on one of their products. By going through a broker, you’re working with someone who will go into bat for you and work to make sure you’re getting the best loan for your situation. Brokers work with banks and lenders every day, as well as evaluate policies and look for current trends in the market. The application and approval process is a lot more streamlined as they will help to break it down for you and explain what exactly is needed.
When asking a broker for refinancing advice, they will chat to you about your current situation, what you’re looking for out of a loan and if anything has changed since you first took out that loan, to establish which one will be best suited to you. There are hundreds of different products on offer in the market, it’s just about finding the right one. One piece of advice Chris offers when it comes to those looking to refinance is to not “take the bait.”
“The deals that you see advertised on tv and radio aren’t necessarily suited to you. The deals might be good and interest rates low but they aren’t always best for your situation.” Brokers can also negotiate with lenders to sometimes provide a better deal than what might be advertised.
Is there any reason I might not be able to refinance?
Although uncommon, there are some circumstances where you may be unable to refinance your home loan. If you don’t have a low enough loan to value ratio (LVR), you may be unable to refinance your mortgage. This is because there might not be enough equity available for it to be considered secure by lenders. This can occur if a property decreases in value or a new lender values it at a lower value than your previous lender.
Another reason a lender might choose to decline your request for refinancing is if your credit score is too low. Whether it’s from missed repayments, or you’re accruing debt, a poor credit score might be enough for lenders to decline. Insufficient income or a lesser income than what you previously reported when obtaining your first loan may also mean your application is knocked back. Paired with an unstable working life, this puts up some major red flags for lenders. Lenders like someone who has a stable working history as they pose less of a risk to be unable to service the loan than someone who is constantly changing jobs or has been unemployed for a long period.
Refinancing your home loan is something everyone should consider whether you’ve been in your current loan for a few years and fees and interest rates have gone up, or you’ve had changes to your living circumstances that mean you need to re-evaluate your repayments.