So you just went to a family reunion and Flashy Bobby (Uncle Robert’s son on your Mum’s side) was there, bragging as usual. As he flashed about his new Audi and latest iPhone, he raved about his amazing new home loan deal after he decided to switch lenders.
Sound familiar? Maybe it was a school reunion, or a wedding, or a school fete? If you’ve ever been in a room with ‘that’ person, you’ll know what we’re talking about. And the worst bit? The Flashy Bobbys of this world can sometimes – just sometimes – actually make sense: refinancing your home loan could make a big difference. But when to refinance? That’s the big question.
To understand when is a good time to refinance your home, you need to step back a bit. First you need to understand your financial position. Has your financial situation changed? Is your current home loan still helping you to reach your financial goals?
You also need to have a think about your motivation to refinance. Are you just chasing a lower rate? Maybe you want better service, or flexibility, or have a few new goals and some extra money could help? There’s lots of reasons, and your reason affects what choices you might make.
When is it beneficial to refinance?
We’re going to tell it to you straight – refinancing might involve a little legwork. But usually you’ll have some pretty good motivation for it. So, when is it worthwhile to refinance? Well, it’s up to you, but here’s a few things to consider:
- Your current lender’s rate is no longer competitive and your repayment is a lot higher than your mate’s… or Flashy Bobby’s.
- Your financial situation has significantly changed. Maybe you got married or have a baby on the way (congratulations!) and realise how handy more money in your pocket could be?
- You’re looking to do some renovation to your home and want to tap into some equity.
- You want to consolidate your debt.
- You want to access better loan features such as redraw and flexible repayments.
- You want to change the terms of your loan.
- Your fixed rate period or interest only period is about to expire, and you want to see what the best option is.
- You just want to run the numbers to make sure you’re getting the best deal.
When not to refinance
The lure of saving some dollars is pretty strong. But it might not always be the right time to refinance. You might want to hold off if:
- You’re planning to sell your home soon.
- You have a fixed rate loan right now and the break costs and exit fees are very high.
- You might be in worse financial shape than when you took out your current loan – lenders care about your risk rating and you might not get as good a rate.
When is it worth it to refinance?
Just because the thought of refinancing might have you blinking dollar signs, don’t just rush out. When is the best time to refinance a loan? Ultimately, when you can be sure it’s a better deal for you.
But remember, the grass might not always be greener. Do your own research, especially if an offer sounds too good to be true. There might be some costs or considerations that make it not as rosy after all.
Also, it’s not always just about the rate. Think about whether you might get any additional benefits from the new lender you are considering, such as airline loyalty points, cash back or fee waivers. Those benefits can add up to more than what a slightly discounted rate will provide.
Lastly, be sure to include the actual costs of refinancing before you make the switch. You might save a smidge, but if it costs you an arm and a leg in the process, it might not be worth it.
Talk to us today if you would like to discuss when is the right time to refinance. We’re here to help. Enquire Now.