The home loan market is heating up. Data from the Australian Bureau of Statistics (ABS) shows demand for home loans increasing with 58,552 loans approved during December 2015. This is up 2.6% on November’s total of 57,081 approvals. With record low interest rates, it’s no surprise that Australians are applying for home loans in numbers not seen since January 2008[1].
With this increase demand comes a bonus for borrowers – greater competition among the more than 2,000 products available in today’s mortgage marketplace. And it’s not only new borrowers taking advantage of this competition. Refinancing is also proving popular among homeowners with a current mortgage.
When to consider refinancing
It’s recommended you consider reviewing your existing home loan every 3 years or so. This helps you determine whether your existing mortgage remains competitive with what’s available in the market. You can also assess whether your current home loan continues to meet any changes to your financial and lifestyle needs.
Three years also means that you’ll minimise any exit fees charged by your existing lender if you decide to switch.
If you’ve taken advantage of the low interest rates of recent years by locking in a fixed rate, start reviewing your options a couple of months prior to the end of the fixed term.
Refinancing is not necessarily all about getting a lower interest rate. When reviewing your home loan, you may find that it no longer meets your needs.
For example, if you’re planning to start a family, you may need to consider a home loan that offers more repayment flexibility than your existing loan offers.
Or, you may be looking to release some of the equity in your home to fund renovations or other home improvements.
Another reason borrowers consider refinancing is to consolidate personal debts such as credit cards and personal loans (higher interest rates) into their mortgage (lower interest rates). Remember, consolidating your debts into your home loan will benefit you financially if you maintain the same total monthly repayments. If you consolidate and then only pay the minimum monthly mortgage repayment, you could be paying off your credit card and personal loan debts over 20 or 25 years which means you’ll actually end up paying much more in total interest on those debts.
When refinancing could benefit you
Refinancing may benefit you where:
- Your lender’s rate is no longer competitive with others in the market
- Your financial situation has changed and you need greater flexibility
- You want to unlock equity for home renovations or to invest in property
- You switch to a fixed rate before rates rise
- You consolidate other debts into your lower rate home loan but maintain the same total monthly repayments.
When refinancing may not make sense
Circumstances where refinancing may not be an advantage include:
- Where you are considering selling or moving in the near future
- High exit fees apply on your current home loan
- Your credit history has been adversely affected since your previous loan due to outstanding debts
- Your income is uncertain over the period of the loan (eg you are a freelancer or contractor)
- Your loan balance is low and you’re not planning on redrawing available equity
- You’ve been paying your loan for many years and refinancing to reduce your monthly repayments will extend your loan term.
If you’re in any doubt as to whether refinancing could benefit you, speak with a qualified mortgage broker before making any decision.
Why use a mortgage broker?
The home loan market is constantly changing. New products regularly come onto the market offering a wide assortment of features and benefits. Fees, charges and interest rates also regularly change. Then there are changes to lending criteria which may result in a particular type of borrower becoming either eligible or ineligible for certain loans.
This constant change in such a competitive marketplace makes it difficult for borrowers to keep well-informed on the multitude of options available to them from the more than 2,000 home loan products on offer.
But, for a mortgage broker, keeping well-informed and up to date with the home loan market is their business.
If you are considering refinancing, contact a Westlawn Mortgage Broker today. We can help you find the right home loan package to suit your needs.
We’ll also support you throughout the home loan application process.
22 February 2016
