When it comes to refinancing, we’ve all been tempted by the potential of greener grass somewhere new. But sometimes it might not be worth the move, especially if you’re only going off a hunch that there’s greener pastures without taking a good look over the refinance fence.
So, when is the right time to refinance?
What do I need to consider?
And will it benefit me long term?
Wait ... How does Facebook know I have a home loan, anyway?
These are the big questions.
Turn down the social media noise for a second and let’s weigh up the pros and cons of refinancing your home.
1. Know where you stand before taking the leap
It isn’t just the market that changes constantly – you do too. Before comparing new loan offers and options, you should put your refinancing motives into perspective to help guide your direction. Here’s an example of how to approach this self-evaluation:
Size up your financial situation
- What’s changed since you originally signed your home loan?
- Is your fixed term or interest only period set to expire soon?
- Has your income changed? Your expenses? Amassed any other debts?
- Have you gotten married? Have a baby on the way? (If so, congrats!)
- What’s the market saying your home is worth today?
Outline your financial goals
- Chasing after a lower interest rate?
- Want more flexible access to rainy-day funds?
- Looking to simplify repayments and consolidate debt?
Hoping to tap into your equity to renovate or extend your home?
- Want to take advantage of loan features that’ll help you pay off your mortgage?
Does your current home loan still fit with the picture you’ve just drawn?
If not, then you’ve got a pretty clear motivation to switch things up but – we’ll give it to you straight – refinancing isn’t always a no-brainer. The cost of refinancing can sometimes outweigh the benefits.
2. Is refinancing the right move, right now?
Just because someone on TikTok said you’re guaranteed to get a better rate right now, doesn’t mean you should rush in headfirst. When is the best time to refinance a loan? Ultimately, it’s when you can be certain you’re going to be better off after the dust settles.
A lower rate is great, but will that actually save you money and offer terms that’ll help you pay off your mortgage faster? Maybe.
There’s lots of added costs and new contractual obligations involved in refinancing. You need to crunch all the numbers to know for sure if you’re set to gain an advantage. It’s not glamorous, but this is why doing your homework and making a well-informed judgement is your best bet for finding the best timing and offer to refinance with.
Keep in mind, you shouldn’t start any refinance applications until you’re comfortable with your choice and know you’re likely to be approved – applying to multiple lenders over a short period can impact your credit score
3. Get familiar with refinancing fees and costs
Ready to start comparing? Here are some of the most common refinancing costs that you might encounter.
You may need to pay another upfront loan application fee to establish a contract with a new lender.
Check below any enticingly low refinance rates for itsy-bitsy font revealing ongoing account fees. Is it still an attractive offer?
If you’re on a fixed rate your current lender may charge administration fees and ‘break costs’ to cover any losses they calculate from your early exit.
A new lender will likely want to value your home and will ask you to pay for a property valuation (also consider anything you’ll need to spend sprucing up your home to get the maximum valuation before they assess it!).
Lenders Mortgage Insurance (LMI)
If you’re refinancing with less than 20% equity (borrowing 80% or more of your home’s market value) you could end up paying for LMI – even if you’ve already paid this back when you settled on your initial home loan.
Security Release fees
Your lender will charge to verify your identity, ensuring you’re authorised, and release the security hold on your property.
Mortgage Registration Fee
When you take out the new mortgage, the Land Titles office in your state or territory will collect a fee to add it to your property’s official title.
4. Plan your next move with your financial goals in mind
Now that you’ve uncovered the costs, drawn out the pros and cons and calculated the potential savings of refinancing – go back to your goals. Is now a good time to be taking out a new loan?
- Will the savings outweigh the refinancing costs over the life of the loan?
- Will the new terms of your refinance give you the right benefits and flexibility?
- How will your repayments be impacted after any promotional rates or fixed rate period ends?
- Will you benefit from switching your interest rate type to fixed/variable/split?
- Will a reduced repayment add years (and additional interest) to your loan?
- Do you trust the new lender to offer exceptional ongoing customer service?
There’s no way to predict everything but with the right combination of timing, cost-benefit analysis, and careful planning, you might have a great deal to gush about at the next family gathering.
Ran the numbers and worked out it’s not worth it? That’s great too! You just saved yourself from a massive misstep and stacks of paperwork. Park your refinancing plans and review again in 6-12 months’ time. Timing is key and that time isn’t always going to be right now.
Want to chat with us about when is the right time for you to refinance?
That’s what we’re here for!
Call us on 13 81 51 or schedule a chat with a Virgin Money loan expert.
Disclaimer: Virgin Money (Australia) Pty Limited ABN 75 103 478 897 promotes and distributes home loans as the authorised representative and credit representative of the issuer and credit provider, Bank of Queensland Limited ABN 32 009 656 740, Australian Credit Licence/AFSL 244 616. Terms and conditions, fees and charges and credit assessment criteria apply.