24 May 2022
Preparing to refinance your home loan
You and your home loan have had a pretty good run. It’s been with you through leaky roofs and loud neighbours. But maybe your eye has been wandering. You’ve seen other home loan rates and wondered how happy you really are.
After all, you know what they say: a change is as good as a holiday. Sure, a new home loan rate isn’t quite the south of France, but it could mean you get there sooner.
Refinancing your home loan can be a great way to save on your mortgage repayment. A lower rate can mean a lighter load on your monthly budget. Plus, home loan products may have changed since you first committed, so you might find a product with features that better suit you.
Sounds good, doesn’t it? Here’s what you need to do.
Cut back non-home loan debt
Your bank will want to see that you can comfortably meet the new repayments on your refinanced home loan. Aiming to cut back credit card debt or personal loan balances will free up income to help you manage the refinanced loan. Remember, banks take into account the LIMIT of your credit cards, store cards and interest free accounts; not just your balance!
Know how much you can comfortably repay
In many cases, refinancing will mean taking on a larger loan, and your bank will want to be sure you can comfortably manage the repayments. A Refinance Calculator can show you the likely repayments for a variety of loan sizes, rates and terms. Start with what makes you comfortable and you’ll get a better idea of how much you should apply to borrow.
Get your home ready for valuation
Your lender may want to have your home valued prior to refinancing your home loan. If this is the case, treat the valuation a bit like an open inspection. Put your best foot forward. Finish those repair jobs you’ve been ‘working on’. Give the place a fresh coat of paint and fill the garden beds with colour. The better the valuation, the more flexibility you’ll likely have when it comes to your loan.
Know why you want to refinance your home loan
Make sure you’re really clear about your motivation for refinancing your home loan. Many home owners use refinancing to fund renovations or the purchase of a new car, but whatever the reason, your bank will be keen to discuss whether refinancing your home loan is the best strategy for your needs.
In some cases, it may not be a suitable choice. For example, if you are refinancing to secure funds for business purposes, your lender could recommend a commercial loan. Or, you might find your bank would prefer you not use a mortgage to buy a wax model of Bradley Cooper.
Take the opportunity to explore new options
Home loan refinance options are plentiful. Refinancing your home loan is the ideal opportunity to take stock of your current loan, to see what’s available with other lenders and to weigh up different types of loans and their features. Circumstances change over the time and the loan you chose when you purchased your home may no longer be the best fit for your lifestyle.
Whatever the reason you’re looking at refinancing your home loan, there are choices available.. See how much you could be saving and let an Element Finance broker find the right option for you.
The Reserve Bank of Australia (RBA) has announced an increase to their cash rate. So, it’s a good idea to plan for a higher rate environment and think of ways you can lessen any impacts on your budget. To help you make the most of the situation, we’ve put together this guide that includes an overview of rate rises and ways you can prepare.
What are rate rises, and what do they mean for you?
The RBA sets cash rates to sustain inflation. These rates are increased to curb spending and lowered to stimulate spending. Currently, economists forecast that there could be multiple rate increases over the coming years beyond this initial rise, given the last increase was in 2010.
But what does this mean for you? Essentially, the interest on your loans is likely to go up. But there are ways you can plan for this and reduce the impact of rises on your goals and lifestyle. To start, you should visit a repayment calculator and run some numbers to see how an interest rate increase will change your loan and whether you need to adjust your budget.
Review your budget
Speaking of budgets, you should review what you have in place! And if you don’t have one, now is a good time to start. Review your monthly surplus. Can you make higher repayments or cut out some costs? Running through these scenarios will help you stay on top of your finances.
Look into additional repayments
Making additional repayments is a great way to reduce your home loan if your budget allows. The more you reduce your principal, the less time it may take to pay off your home loan. To understand what additional repayments can do for you, check out an additional repayments calculator.
Look into a fixed loan
A fixed rate home loan gives you the comfort of knowing what your repayments will be over a specific period, making your goals and plans more manageable. One thing to be aware of is the end date of your fixed loan and any potential increase in interest based on the economic conditions at that time.
If you are looking to move to a fixed rate, you can do so with confidence by locking in an interest rate with a rate lock service. For example, our rate lock is applicable for up to 100 days from the request date, so that you can protect yourself from any potential rate increases.
Or try a split loan
Want the best of both worlds? Why not split your loan into a variable and fixed portion. You’ll get the security of a fixed rate for a part of your loan and all the benefits and flexibility of a variable rate for the other portion.
Make the most of flexible features
Offset accounts are a solid option if you’re looking for some flexibility. Every dollar you keep in your offset account reduces the interest you’ll have to pay on your linked home loan. This has the benefit of allowing you to use your offset funds when you need them.
Remember, Element Finance is here to help. You can call or message us today to understand the options available to you.