If the bank says NO, DFS can get you a YES!
If you’re thinking about refinancing your home loan, but not sure if it’s the right move for you, then chances are you’ll be looking around for information on the pros and cons of conducting a refinance. At Diverse Funding Solutions (DFS) we’re not only passionate about helping Australian business owners with their funding needs, but we also love to educate about financial strategy, tips and tricks.
That’s why we’ve prepared this guide on mastering home refinancing, so that you can refinance your home with confidence.
Questioning whether you should refinance your home is common, however, there’s no easy answer. Instead, it depends on your personal and financial circumstances, including what you hope you achieve from performing a refinance.
One of the largest reasons that homeowners seek to refinance their home loans is to be able to get ahead financially. Whether this is through lowered (or more flexible) repayments to save money, consolidating debt or taking the opportunity to access the equity tied up in your home’s value, optimising your financial position by conducting a home loan refinance could be a game changer for you, your family or your business.
One of the other reasons that many people choose to refinance a home loan is to access better loan features. Having a home loan with an attractive interest rate is one thing, however, your financial world could be simplified by having a mortgage with an offset account or transaction account linked, or one that doesn’t charge early repayment fees (this is particularly important if you feel that there’s a high likelihood you’ll be able to repay your loan early).
If you fixed your home loan rate when COVID hit Australia, then chances are that your fixed rate mortgage is now coming up for renewal. How do we know? Well, most Australian borrowers fix the interest rate on their mortgage for three years or less. Therefore if your fixed term is coming to an end, it’s likely that you’ll be in touch with your existing lender to see what’s next for your home loan account. This represents a prime opportunity to talk to your lender about your current loan features, interest rates and of course assess for yourself whether you could benefit from a refinance.
We detail the main benefits of conducting a home loan refinance.
Fixed rate home loans that are coming up to their expiry typically face a much larger initial increase in their monthly repayments thanks to several interest rate rises across 2022 and early 2023. Therefore, assessing your options to find a lower interest rate could help save you money.
Searching for cheaper interest rates is common practice, regardless of whether a fixed interest rate is expiring or not. If your current lender isn’t able to offer a lower interest rate on your existing home loan, then switching home loans could mean saving hundreds on your mortgage repayments every month.
Top tip: If you’re refinancing to lock in a better interest rate, but can comfortably afford your existing repayment, continuing to repay your existing payment amount (on the lower interest rate) will help get your home loan balance down, quicker!
Have you got credit accounts all over the place, costing you both time and money? Perhaps you have credit cards outstanding, a car loan or small personal loan — consolidating eligible loans into your home loan means only managing one loan repayment, paying one set of loan fees and only being charged one interest rate.
For busy families, professionals and business owners, the saving in both time and stress of only managing one loan account (instead of multiple loan repayments) is a significant benefit in itself, however, the cost savings of debt consolidations can often provide much-needed financial freedom and flexibility for stretched budgets. In fact, if you had a car loan or personal loan with a high interest rate, being able to consolidate it under a new home loan could mean that you effectively pay off that loan sooner than if you were to hold it separate to the home loan.
Being able to consolidate debt when you refinance your home loan of course depends on how much equity you hold in your property value. The upside to conducting a refinance now is that your property has likely experienced the rise in real estate value recently, meaning that it’s likely you’ve built up more equity than you realise.
Important to keep in mind: Personal loans and vehicle finance are typically offered over loan terms ranging between 3 and 7 years. Your new loan after a home loan refinance may have a loan term between 20 and 30 years. Be sure to run the numbers on your debt consolidation to make sure that you’re not getting charged interest on your car over 20 – 30 years. Making additional repayments is a great way to combat this risk.
Speaking of unlocking equity in your property value, refinancing your home loan can enable you to use that equity to invest elsewhere. You could use the equity to secure an investment property, take your family on a much-needed holiday, or even invest back into your business to improve your working capital or make your expansion dreams a reality.
While there are many benefits of refinancing, there are also some things to bear in mind.
When you switch home loans, the existing lender may charge a break fee or exit fees to leave the home loan. If you’re unsure what these are, check your loan contract.
If you borrowed more than 80% of your property value, then there’s a high likelihood you had to pay LMI. Unfortunately, this is usually not refundable, and if you’re going to be borrowing greater than 80% of your property value under the new loan, too — then, you’ll need to pay LMI again!
Here are some of our top tips so that you can get the most from your refinance:
At Diverse Funding Solutions, we have access to over 200 of Australia’s top private lenders — giving you optimal choice and opportunity. We have helped hundreds of Aussie business owners find the flexible and fast funding to refinance their home loan. If you’d like to understand more on how we can help you too, contact the team, today.