When Should You Refinance Your Home Loan?

A home is the largest purchase most people will make, and a mortgage their largest liability. Australians typically change their home loan provider every 4-5 years, and whilst there is no set period in which you should consider a home loan refinance, there are some common triggers that cause home owners to shop around.

There are often fees involved with refinancing a loan, but with a good deal you should be able to recoup these costs and start seeing the benefits within just a few months. At Your Finance Adviser, we can help you review your current home loan and compare it to available deals across multiple lenders to see whether a refinance is right for you.

Reasons to refinance

It’s a good idea to conduct a quick health check of your home loan once a year, but the factors below can also be a catalyst to shop around for a better deal.

Interest rate change

On the first Tuesday of every month, the Reserve Bank of Australia (RBA) announces whether the cash rate will increase, decrease or be left on hold. This rate is the figure that guides the interest rates of the major lenders, who then add their own margin. They are not obliged to follow the movements of the official cash rate. Whilst it doesn’t make sense to refinance your loan every month, you should keep an eye on how your lender responds to changes in the cash rate over time and how this compares with others on the market.

Lenders may also choose to increase or decrease rates at any time at their own discretion. If you have a variable rate loan and notice that the rate is slowly creeping up, it could be an indicator that it’s time to shop for a better deal. Of course, it’s always a good idea to contact the lender first to see if they’re willing to provide a rate discount to keep your business.

Fixed rate expiry

Fixed rate loans have the interest rate locked for a period of one to ten years, often with high break costs to exit the loan. As your fixed rate is nearing expiry, it’s a great opportunity to check the market and see what other options are available. In addition to a better rate, you may be able to take advantage of package discounts or extra features like an offset account.

Change in personal circumstances

As your life changes, so too do your needs for a loan. For example, you may initially have been happy to sign up for the lowest rate no-frills home loan on the market, but have recently received a pay increase and want to clear your debt faster. In this case, you may benefit from loan features like an offset account or redraw facility, allowing you to reduce the total interest paid on your loan whilst still having access to the funds.

Similarly, you may be looking at renovating your house and need to access equity in your house to pay for the work. It makes sense to apply for the loan balance increase at the same time as the refinance, enabling you to get a better deal and extra cash in the same application.

If you have been thinking of refinancing or would just like to know how your loan facilities stack up against the rest, contact us at Your Finance Adviser for a quick discussion and home loan review.