Questions to ask before refinancing

By the resi financial blog team, 21 March 2014

What do I do before I refinance my home loan

Low interest rates are prompting more people to consider refinancing but there are a number of considerations to take into account before going down this path.

During December 2013, refinancing commitments were 12.5 per cent higher than 12 months earlier. Over 2013, there were 598,364 owner-occupier housing finance commitments, according to RP Data, and 32.4 per cent of these were for refinancing purposes.

While the main reason for refinancing is wanting a cheaper rate, borrowers should remember there are a number of costs associated with exiting a loan and entering into a new one. Borrowers should also ensure they confirm all aspects of their existing loan first as they may find the one they have is still the most suitable for their needs.

Refinancing may be a poor decision if you are already through the majority of your loan term, your credit history is poor, or you have uncertain income over the length of a loan. Borrowers should ask themselves the following questions and if the answer to any is “yes”, then they will likely benefit from refinancing:

  1. Do you want to reduce your monthly repayments?
  2. Are you looking to switch from a variable rate to a fixed rate?
  3. Are you dissatisfied with the service provided by your current lender?
  4. Is your current interest rate less competitive than other lenders’?
  5. Would you be better off with a cheaper rate with fewer loan features? The key areas when researching loans are: service, fees, features, rates and flexibility.

There’s little point taking out a mortgage that has the lowest rate if it isn’t being used in the most efficient way.

Categories: Refinancing