3 Questions to ask before you refinance your home loan

With interest rates at record lows and competitive deals on offer, switching to a new loan or lender may be an appealing prospect, with the potential to make significant savings.

Before you make the decision to refinance, there are a number of areas to consider. Here we cover off some questions you should ask before making the switch.

  1. Has my financial situation changed since I first applied for a home loan?

    A refinance is effectively a brand-new loan application. All of the personal financial data you had to gather the first time around will need to be produced again. The stability of your income stream, your assets, and your credit card debts and other debts and expenses will all be reviewed and may impact the result of your application.

    It’s important to think about your ongoing ability to pay off your loan, particularly if you’re planning on making big changes that will affect your financial situation, such as starting a family or quitting your job to start your own business.

    Of course, if you’ve just received a big pay rise or are now an empty nester, this may also make a difference to your loan application.

  2. Will the refinance really save me money?

    Negotiating a lower interest rate or consolidating debts may seem like a financial no-brainer, but the fees associated with switching loans can be hefty, so you need to look at all the costs to work out whether you will really be saving money.

    Fixed rate loans can be particularly expensive to exit and leaving your home loan early will usually see you pay some combination of exit fees, application fees, stamp duty or even legal fees. If you are borrowing more than 80% of the value of your property, lenders mortgage insurance (LMI) may also be required.

    Unfortunately, these fees and costs are not usually transferable from one loan to another, so you may need to pay them again even if you paid them when you took out your original loan.

  3. What are the loan features?

    Choosing a new home loan involves much more than finding the lowest interest rate. Home loans come with a range of features, which can provide flexibility and help you pay off your mortgage faster. Depending on the lender and loan type you choose, some of the features you might be able to access include an offset account, free redraw, unlimited extra repayments and direct salary crediting. There are many things to consider before signing up for a new loan, and a Finance Point mortgage broker will assist you in the whole process making it a smooth application experience for you.