Should you Refinance your Home Loan
Were you thinking of refinancing your home loan but are concerned with the current COVID-19 situation? It is worth considering that if you refinance your home loan now, that it could help you to save money! However, it is important to get financial advice first and be aware of the potential downsides.
1. Refinance to a lower interest rate
The official cash rate is now at 0.25%, the lowest it has been in decades. Also, the banks are in strong competition to gain new clients and are offering some incredibly low-interest rates along with cash back incentives.
Although it can be more convenient to try to achieve a more competitive rate with your current lender first, you might find they won’t give you as good a rate as if you were to refinance with a different lender. This is because many lenders are offering lower rates and incentives to new business. Make sure to do your due diligence as introductory rates and fees can hide the ‘actual rate’ as they may not be included in the ‘advertised rate’.
2. Get more flexible loan features
If your current bank can’t offer you what you want from your home loan, you should consider the option of refinancing with a lender who can. These loan features may help you save money by offering additional features such as redraw facilities, offset accounts or fixed rate options.
Currently there are some of the lowest fixed rate offers on the market and that could be a good opportunity for borrowers to take advantage of. Now may potentially be a great time to fix your rate as interest rates are already at record lows and eventually may start to move back up. Be aware of the negatives to fixing rates as they may incur high break fees and reduced repayment options.
3. Reduce your loan term
If income is secure despite the COVID-19 crisis and you have additional savings, this could be a good opportunity to pay down your loan quicker by making extra repayments at a lower rate. This can save you money in the long run because you will reduce your loan term and pay less interest overall. You may want to consider refinancing with a different lender so you can take advantage of such an opportunity, as your current lender may not allow you to make additional repayments.
4. Borrow against your equity to renovate or consolidate debts
Now might be a great time to start planning that renovation you have always wanted. Whether it’s a bathroom renovation or new kitchen, or a full extension, now may be a great time to cash-out on the equity you have if you don’t have any savings.
Equity is the difference between the balance of your mortgage and value of your property. You may be eligible to access up to 80% of your home equity by refinancing and you can use this money to renovate.
You may also want to take advantage of the current low rates to consolidate any other outstanding debts you may have.
5. Can you refinance under the new social distancing rules?
Yes. Mortgage brokers are considered essential services and at SB Finance we remain open for business. Many lenders have relaxed their policies around requiring face to face meetings and at SB Finance we can arrange a refinance via video conference (Zoom / Skype), online or over the phone. Reach out to the team today to see how we can help you.
6. Be aware of the costs of refinancing
There can be some costs involved in refinancing, check the terms and conditions. Check with your lender regarding any exit costs or fees that may be involved with leaving your lender to move to a new one.
If you increase the size of your loan, you may need to pay government charges or other fees including stamp duty. In addition, your interest repayments will be higher, and you will pay more in interest over the life of the loan.
You may also need to pay LMI (Lenders Mortgage Insurance) if you borrow more than 80% of the property’s value or if you can’t transfer your old LMI to your new lender. There can also be fees for your loan application, property valuation and settlement, although some lenders will cover these costs.
Of course, these negatives need to be weighed up against your personal financial situation and you should seek independent legal and financial advice. As a starting point, reach out to the team at SB finance step to crunch some numbers and discuss your option based on your individual situation, that way you can make an informed decision about whether or not to refinance your home loan during the COVID-19 crisis.