08 April 2011
The option to refinance home loans is becoming an increasingly popular way of accessing equity which has been accrued in the form of a home loan. In the simplest of terms, a refinanced home loan means swapping your first original mortgage and home loan rates for a completely new mortgage and interest rates. This can be done with your current lender or, if you choose, a completely new lender. However, fees, charges and the amount of paperwork involved may vary dramatically depending on whether you stay with the same lender or if you switch to a new one.
There are several reasons why you would seek mortgage refinancing. These include:
To get a cheaper home loan interest rate
Homeowners often seek to refinance home loans when interest rates fall below the rate they had on their mortgage when they first bought their homes. Over time, the money saved here can be astronomical. If you took out a fixed rate home loan during a period of higher interest rates, then it may be in your favour to refinance.
To consolidate debts into a single loan
In times of rising interest rates and other pressures which have amounted during the GFC (Global Financial Crisis) many people are seeking ways of consolidating and therefore reducing the monthly repayments of their loans. Pressures of other monthly repayments often make budgeting hard, especially when your mortgage rates fluctuate. Choosing mortgage refinancing to a fixed monthly rate makes planning much easier.
To switch between fixed and variable rate loans
When home loan interest rates seem to constantly rise, some people switch to a fixed rate mortgage in order to avoid paying extra interest rate costs over long periods of rising fees. By fixing your mortgage rate, you may be less unaffected by changes in the economy.
Vise-versa, when interest rates are falling then those with a fixed rate home loan may find that they are paying over the odds. By home loan refinancing from a fixed rate to a variable rate mortgage, interest repayments will fall with the changes in the market. If these stay constantly lower over a long period of time, the money saved could amount to thousands.
To obtain extra finance for renovations / holidays etc
Home refinancing is popular among those that want to make improvements to their property and therefore increase its base value. Some simply need a holiday or a new car
There are factors and costs involved in refinancing your home however and these should be considered carefully before you opt into this decision. A family holiday taken on the back of refinancing your home may end up costing more than you anticipate. If you’re trying to ride the highs and lows of the economy by swapping between fixed rate loans and variable rates, then this is risky also. You need to be sure that the money spent will be counteracted by the money saved.
How to come out on top when refinancing your home…
Remember the fees:
These include application, establishment and handling fees when applying for your new loan and can be quite large amounts.
Check your current loan agreement:
There may be costs associated with the settlement of your existing home loan. Different lenders apply different costs. Fixed rate loans can often have high associated costs when it comes to early settlement and discharge fees.
Understanding the market:
Make a calculation of the fees that you will be charged for early settlement and discharging from your old agreement. Speak to your current lender first as it’s in their interest to retain your business. You may be able to negotiate better fees with your current lender in comparison to a completely new lender. You should include the fees associated with all costs and compare this figure to the money that you could potentially save by refinancing your home. If you are switching to a new home loan structure, from variable to fixed, or vise-versa, then make sure you have a thorough understanding of the economic changes of the market. The money you save could well outweigh the money spent on refinancing but it’s a market which needs careful consideration.
If you are considering any of the above and want to assess your options, speak to a Bankwest adviser.
You can also visit the ASIC website for the following:
Bankwest responsible lending policy
Whilst most of our customers are able to pay their debts comfortably, in the current environment there is increased pressure on some household budgets. Our responsible lending policy means we have robust and sensible lending criteria to ensure we only lend to those customers who have the capacity to repay their debt. Where a customer subsequently experiences financial difficulty we have a range of options to assist them.