Are you one of the millions of Australian homeowners caught in the ebb and flow of the mortgage landscape, wondering if refinancing your home loan is the way to go?
If you have wondered if you’re making the most of your mortgage or if there’s a better way to navigate the ever-changing home loan rates and financial opportunities, you’re not alone. In fact, the Australian Bureau of Statistics (ABS) have released a report that says the total worth of real estate home loans refinanced in February 2023 alone is $3 billion worth more than last year — a whopping $19.9 billion!
The truth is, your mortgage is not a one-time deal that you set and forget. It’s an evolving financial tool that can be optimised to your advantage. That’s why it’s time to unlock the secrets of refinancing and discover just how often you should consider this game-changing move.
In this article, we delve into the world of refinancing and answer the burning question: How often should you think about refinancing your home loan? Join us as we uncover the signs that may indicate it’s time to refinance home loan, explore the factors to consider before making the leap, and provide tips for navigating the complex landscape of lenders and real estate home loans.
FREE Consultation with a brokerFirst off, how does refinancing your home loan work?
Refinancing your home loan involves replacing your current mortgage with a new one, typically with more favorable terms. There are many benefits of refinancing your home loan, as this financial maneuver allows you to:
- take advantage of changes in interest rates;
- opt for debt consolidation;
- secure more favourable loan terms;
- modify their loan structure; or
- access their accumulated home equity for various purposes (e.g., renovations, investing, marriage, etc).
When to refinance home loan?
The question of how often you should refinance your home loan is one that does not have a conclusive answer.
However, based on our years of experience and industry knowledge, we share with our clients the below signs that it might be time to refinance:
Interest rate environment
The interest rate environment plays a significant role in determining whether refinancing is beneficial. When interest rates are significantly lower than the rate on your current mortgage, it may be an opportune time to refinance. Lower interest rates can result in substantial savings over the loan term, reducing the overall cost of borrowing.
Okay, but should I refinance at time when interest rates are high?
We are in the middle of a cash rate cycle where the RBA cash rate just keeps going up, putting a lot of homeowners in severe mortgage pain. But, there are scenarios where refinancing during high-interest rate periods can still be beneficial:
- If you believe that interest rates will continue to rise in the future, refinancing to a fixed-rate mortgage during a high-interest rate period can provide stability and protect you from future rate hikes.
- High-interest rate periods can create an opportunity for debt consolidation. If you have high-interest debts, such as credit cards or personal loans, refinancing during a high-interest rate period can allow you to consolidate those debts into your mortgage at a lower interest rate.
Changes in personal financial situation
Changes in your personal financial objectives and situation can also signal that refinancing your home loan is worth considering. Some scenarios that may warrant refinancing include:
- Increased income: If your income has significantly increased, you are in a better position to make better purchasing decisions and refinance your home loan. You can then secure a lower interest rate or adjust your loan term to align with your improved financial capacity.
- Improved credit score: You may have paid off a lot of significant debts recently, resulting in decreased financial commitments and overall debt-to-income ratio improvement. A higher credit score can make you eligible for better loan terms and interest rates. Refinancing can help you take advantage of your improved creditworthiness and secure more favourable loan terms.
- Changing financial goals or lifestyle: Refinancing allows you to adjust your mortgage to align with changing financial goals or lifestyle needs. For example, if you plan to start a family, explore investment opportunities, renovate your home, or embark on a career change that requires a different financial approach, refinancing can provide the flexibility to adapt your mortgage accordingly.
Your fixed rate mortgage term is ending
When your fixed rate term is ending, it presents an opportune time to reassess your mortgage and consider refinancing. This is because your mortgage usually transitions to a variable interest rate once its fixed rate term ends. This variable rate may be higher than the rate you enjoyed during the fixed term.
Refinancing gives you the chance to secure a new fixed rate or explore other loan options. You can maintain more control over your mortgage payments and avoid any potential “rate shock”.
The end of your fixed rate term also provides a chance to reassess your lender options. By shopping around and comparing offers from different lenders, you can potentially find a more competitive interest rate, better home loan features, lower fees, or better customer service.
Should I refinance my home loan?
When considering whether to refinance your home loan, it’s crucial to make an informed decision that aligns with your financial goals.
While the decision ultimately depends on your individual circumstances, enlisting the help of specialists like ZEP Finance can greatly simplify the process and maximise the benefits. With us, you get:
- Expert guidance
- Access to a wide lender network
- Free analysis of your current financial situation and identification of opportunities you can explore
- Relief from researching doing the legwork of your refinancing application
- A mortgage broker team that will treat you as a client for life!
Click the link below to arrange a no-obligation consultation with us.
Speak with a refinancing mortgage broker
