The combination of record property prices and historic low interest rates may mean that you should consider refinancing. Lenders across the country are currently competing more aggressively than ever before for your debt which is providing plenty of proactive Australians the chance to reduce their borrowing costs and improve the terms of their loans.

What is refinancing?

Refinancing is simply the process of financing something again, typically via a new loan with better terms and a lower rate of interest costs. In most cases, this requires switching loans from one bank to another.

Who can benefit from a refinance?

If you have an existing home loan or investment loan and you do not have a ‘fixed’ interest rate then you can consider a refinancing strategy. ‘Fixed’ interest rates are very costly to break and it may therefore be best to wait until your fixed term matures.

If you have credit cards or personal loans you may also consider consolidating them into your home loan and therefore attracting a much lower rate of interest. It may also be best to keep these loans on a separate split and even on a reduced term to ensure you payout these debts first.

Where do I start?

If you’re thinking about switching banks for the purpose of seeking a lower rate of interest, you should first request a discount from your current bank. In order to justify your sought-after discount, be sure to firstly identify a better deal elsewhere and provide evidence of this to your lender. You can then ask them to match this deal or else you will be compelled to leave.

There are costs to refinance such as time and money. If you can get a discount with your existing lender then it may be wise to stay put. Most of the time, banks will not be able to beat offers which are tailored to new customers with a different lender. In this case, it’s time to refinance.

Avoid Lenders Mortgage Insurance

This is one of the main hurdles. Total loans should not exceed 80% of the property value. If they do exceed 80%, then you will likely be charged Lenders Mortgage Insurance (LMI). In order to avoid LMI, have an upfront valuation done on your property(s) first before submitting any applications. Most lenders will do this for free and with no obligation to proceed to an application.

Understand the costs

There are costs to refinance such as discharge, title registration and application fees. It can cost between $500 – $800 to refinance and you want to be sure that you will save at least double that amount in the first year after refinancing. Some banks are offering $1,500 cash back to refinance which can help cover switching costs and make it more worthwhile.

If you’re considering a refinance please get in touch with the Northeastteam. We can introduce you to a qualified, independent mortgage broker who can help weigh up the choices for you and manage the process from start to finish.