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Is now the time to consider a refinance of your home loan?


If you’ve been keeping track of the RBA cash rate announcements lately, you may know that we are at a historic low rate of 1.5 per cent1. This means that competition in the mortgage market has been fierce with many lenders cutting rates to below 4 per cent for some of their home loan products.

So if you’re sitting on a mortgage that’s at 4 per cent or over, you may be starting to think that you’re getting a raw deal. The good news is that refinancing isn’t as difficult as you may think. As we head into the new year, now could be a great time to switch and secure a deal that could potentially save you thousands in the long-run. 

Not yet convinced that now might be a good time for you to refinance? There are lots of factors that need to be considered before making a decision that could have a big impact on your finances. And deciding if now is the right time for you to refinance, will definitely be conditional on your personal circumstances. 

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Here are some starting points to help you figure out if now may be a good time for you to refinance:

Is your current interest rate competitive?

Before refinancing, determine if your current interest rate is competitive and how much you stand to save if you switch to a lower rate. This can be done by using a mortgage calculator to look at the repayment amount on your current loan and what it could potentially be if you switched to a lower rate. Working out how much you could save in this way, may help in your decision in whether or not now is a good time for you to refinance.

What fees will you have to pay?

There may be some fees associated with refinancing that can be taken into account when considering a switch of home loans. If you settled your home loan before June 2011 you may be eligible to pay an exit fee for paying out your loan before the end of the loan term2. Also, if your home loan interest rate is fixed, you may have to pay break costs which can be significant depending on your loan and how long you have left in the fixed period.

When applying for a new loan there may be an application or settlement fee that is payable to establish the loan3. Consider these potential fees and compare them to the possible long-term savings gained by switching mortgages. It is important that you are aware of associated fees, and are able to pay them if you do decide to refinance.

Will you still have access to the features you use?

Another consideration before you decide that you are definitely ready to refinance, is thinking about the features of your current loan that you use and identifying whether or not your new loan has anything similar or equivalent. For example, you may like to use the redraw facility or offset account on your current loan, so finding a new loan that can allow you to continue taking advantage of these features may be important to you.

Article written by Rate City.

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1 Reserve Bank of Australia, 'Cash Rate', 11 October 2017

2 Australian Securities and Investment Commission (ASIC), MoneySmart, 'Fees', 6 October 2017

3 Australian Securities and Investment Commission (ASIC), MoneySmart, 'Fees', 6 October 2017