It’s no secret that the housing market is a bit of a minefield at the moment. Even if you have managed to buy your way into it, you may be feeling the pinch as banks continue to raise interest rates.
If your mortgage repayments are only getting higher, or if you want to pay your loan off faster, it may be time to consider refinancing.
Define your refinancing goal
Before you begin, it’s important to sit down and map out what you want from your next home loan. Maybe you want to reduce your monthly payments, pay your loan off quicker, enjoy more flexibility or consolidate debt? Setting a clear goal will help you to choose the most suitable new home loan.
Compare the alternatives
To find out if there are loans out there that meet your refinancing goals, you will need to compare your current loan to others on the market. To do so, you will need to locate your loan details, including your current interest rate, outstanding mortgage balance, monthly repayment amount, the value of your property and any discharge or break fees.
Use refinance calculators, such as RateCity’s refinance calculator, to compare your current loan to market alternatives. You can find alternative loan interest rates, estimated upfront fees, as well as the potential monthly savings and savings over the life of the loan. There are more than 1200 loans on RateCity with no upfront fees, so it’s worth doing your research.
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Calculate all the costs
Before you switch to your new home loan, you should compare your potential monthly savings to the switch cost to see how long it will take to make this up.
The switch cost is everything that goes into the cost of refinancing, including exit fees, break fees and/or start-up fees. Lenders aren’t allowed to charge exit fees on variable loans taken out after 30 June 2011, but if you took out a loan before this date, or if you have a fixed loan, you may need to pay the break fee. The length of time it will take for your savings to cover your switch costs differs for each loan, so you will need to make sure you’re comfortable with this.