When is the best time to refinance a home loan or mortgage?

Refinancing your mortgage or home loan can provide you with significant savings. However, there are several important factors that you need to consider before you finally decide to sign up with another lender.

Time is an important element in refinancing your home loan. This is not only a chance to lower down your regular repayments, but can also be an ideal way to restructure your mortgage or access your home equity so it is more suitable to your current lifestyle. Probably you were single when you first got the home loan, but after five years, you got married and now have two kids. Hence, it may help you to review your existing repayments and explore other options to lower down your mortgage.

Refinancing your home loan will allow you to take advantage of cost-saving features. However, it is crucial that you know the right time to refinance. There’s no generic template that you can use to know if it is okay to move. Instead, you must evaluate your personal and financial situation with the help of a financial adviser to check if there are indicators that are pointing in the direction of refinancing.

Basically, you must perform a financial health assessment at least once every year to check if your home loan is still suitable for your lifestyle. Refinancing a home loan with an even 0.5 per cent lower compared to your existing rate can result to thousands of dollar savings throughout the loan term.

Factors to Consider in Refinancing Your Home Loan

Determining the right time to find another lender will largely depend on your financial and personal situation such as current earnings, job security, and more. It is best to consult with a professional financial adviser to help you figure out the best time to refinance.

In general, the following factors will help you decide if it is the right time to refinance:

• Potential increase in interest rate – If your lender has already announced a raise in interest rate, it may be the right time to look for another lender who is offering a lower interest rate and other benefits such as an offset account or free redraw facility. You should also consult your financial adviser on possible interest rates increase from the Reserve Bank. However, you should not base your refinancing decision on projections, because interest rates tend to fluctuate and dependent on various economic factors.
• Debt consolidation – If you are struggling with paying your bills and debts other than your home loan, you may also choose to consolidate these payables into your home loan. This will allow you to easily manage the repayments rather than worrying over separate bills. Through proper restructuring, you can consolidate all your debts into your mortgage to lower down your repayments.
• Job security and current income – Refinancing also has its prerequisites before you can avail. For example, most lenders prefer applicants who have been in the same job for at least one year and has steady sources of income. These criteria indicate that you have the capacity to make the repayments, so you will be categorized as a low-risk borrower with lower interest rates.

The cost of refinancing your home loan

Another factor to consider in refinancing your home loan is the cost of moving to another lender. Take note that you have to consider the discharge fees between $100 and $400 by your present lender on top of the upfront fees charged by the new loan provider. You can use the Express Mortgage Market Refinance Mortgage Switching Calculator to help you crunch the numbers. You should also consult your financial adviser to help you with these calculations and other related concerns.

For more questions on refinancing, call Express Mortgage Market on 1300 663 997.

 

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