Considerations when refinancing | DOMAIN

With interest rates sitting at record lows, Australian mortgage holders are increasingly looking to refinance their home loan in search of a better rate. According to the latest data from Mortgage Choice, more than 36 per cent of all home loans written are for refinancing purposes.

THE BIG PICTURE: While there are clear benefits associated with refinancing, it is important for borrowers to work out the costs associated with the process and make sure any potential gains outweigh the various fees and charges.

THE BIG PICTURE: While there are clear benefits associated with refinancing, it is important for borrowers to work out the costs associated with the process and make sure any potential gains outweigh the various fees and charges.

Franchisee of Mortgage Choice in Bendigo, Peter Machell said he had seen a recent spike in the number of customers looking to refinance their home loan.

“In the past few months we’ve seen a number of lenders tweak their pricing and policy in line with their appetite for business. With so much movement in the interest rate market, it’s important for borrowers to stay on top of their mortgage and make sure they are in the right product for their needs.”

Peter said while borrowers should generally look to review their mortgage once a year, the current rate of change in the market means borrowers could review their mortgage once a quarter. “Refinancing often allows customers to secure a more competitive home loan that is better suited to their unique financial situation.”

That was the case for Nikita Robson, who had previously taken out a home loan with a very competitive honeymoon interest rate. Knowing that period was soon coming to an end, Nikita spoke to her broker to see if there was a way she could refinance into a sharper product rather than simply stick with her lender and be charged a higher rate when her honeymoon rate expired.

“I wanted to refinance to make sure I was getting the best deal,” she said. “But I was worried about how hard it might be to change and the paperwork associated with it.” Nikita needn’t have worried. By her own admission, refinancing was a simple process made even simpler by using a mortgage broker.

While Nikita refinanced her loan in order to secure a better rate, this isn’t the only reason borrowers choose to refinance, with some people looking to renovate their home and refinancing in order to make this a reality.

While refinancing is a fairly seamless process, Peter said there are a few things all borrowers should be mindful of. “It’s a good idea to find out about any break fees or deferred establishment fees that might apply if you choose to pay out your existing loan early. Your new lender may also charge a range of upfront fees, including loan application, valuation and settlement fees.”

Peter said borrowers may also have to pay Lenders Mortgage Insurance. “While a borrower may have paid this before, it is not transferable – if a borrower is planning to borrow 80 per cent or more of the property’s value, they’ll need to pay it again.”

Peter said borrowers should chat to a professional before refinancing.