5 important considerations before refinancing
Following its meeting today, the Reserve Bank of Australia (RBA) chose to hold the cash rate at 4.1%. This is the third month in a row the Bank chose to hold the cash rate following positive signs in inflationary data.
With the cash rate currently four percentage points higher than it was at the beginning of 2022, combined with a higher cost of living, many homeowners have lighter wallets and smaller shopping trolleys. If you have a home loan, it is likely you have experienced an increase in repayments, or will soon when your fixed-rate term expires. Because of this, Australia has seen a dramatic increase in refinancing this year.
Something to keep in mind when looking to refinance your home loan is lenders vary greatly in what they can offer. You may want to find the lowest interest rate possible, however there are a number of other factors to consider that could save you time and money.
5 things to keep in mind before refinancing
Some areas lenders can vary greatly include:
- Serviceability criteria. Each lender has its own criteria to determine whether you can easily make the repayments. This can impact the amount it may be willing to lend you and whether you qualify for a loan in the first place.
- Fee differences. Loans cost more than just the interest rate. Some charge annual fees, fees for features and even things like lenders mortgage insurance (LMI) can come at a different cost depending on the lender.
- Turnaround times. Some lenders can approve loans much faster than others. It’s important to factor in the approval times when changing lenders and to factor potential extra time into your calculations to determine whether it impacts your cost saving compared to another lender that may be faster.
- Lending criteria. Some lending criteria are the same across lenders - such as being at least 18 years old and your resident status. However, other criteria vary depending on the lender, such as your employment (including if you are self-employed) and the details of the property (some may have restrictions on building types or locations).
- Promotions. Depending on your situation, there may be promotions available that you could qualify for. For example, some lenders offer “green loans” if a home fulfils certain sustainable, energy-efficient criteria. Others offer special deals for people in certain professions including the medical industry.
On top of this, you may want to structure your loan differently to better suit your current circumstances or goals. The structure of your loan can make a difference to your repayments, interest you pay and time it will take to pay off.
As a broker, I work with lenders day in, day out, and have a good understanding of how long approvals are taking and how they vary in their policies and offerings. If you’re considering refinancing, arrange a free, no-obligation chat. I’ll assess your situation and make recommendations in your best interest.