How Do I Refinance My Home Loan And Save?
Published 1:10 am 4 Feb 2020
DG Institute founder Dominique Grubisa offers up some refinancing home loan tips. In this article, she goes over the advantages and obstacles to getting a refinance mortgage for your home.
With all the interest rate drops, isn’t it about time you looked into refinancing your home loan? Maybe you find yourself struggling with higher interest rates than you expected. Perhaps you’ve moved from a fixed-rate loan to a variable rate loan and you’re feeling the squeeze.
Or the issue might be that you’re dealing with debt in other areas and need a way to simplify and save…
Or maybe you just don’t feel that your lender has passed on enough of a rate cut over the last 12 months.
In all of these situations, a refinance mortgage may be the solution to improve your cash flow and overall financial situation.
Of course, the extent to which refinancing can help will depend on your situation. But in this article, we cover why switching home loans may work for you and some tips on how to do it.
The Benefits of Refinancing Your Home Loan
So, when might refinancing your mortgage prove beneficial to you? There are several situations in which you stand to gain from refinancing. These include the following:
- You’ve accumulated a range of other debts, such as personal loans or credit card debt. In this situation, you can consolidate debts into a single home loan. It simplifies your debt problem and could even lead to you paying less thanks to lower interest rates.
- You’re struggling with your monthly repayments to the point where you’re experiencing mortgage stress. When you refinance your home loan, you may be able to access lower interest rates that help.
- You wish to gain access to more flexible repayments and other loan features. For example, you may want the ability to make extra repayments so that you can reduce the loan’s principal even faster. Or, you may want access to an offset account that allows you to save while putting a dent in the accrued interest.
- Refinancing is also an option if you wish to make home improvements or invest in property. It allows you to leverage your equity so that you have access to the money that you need.
Beyond all of this, refinancing can also help you to protect yourself against changing regulations. It is often these external factors that play the largest role in the issues you may have with your mortgage.
With that said, let’s look at some tips to keep in mind should you choose to refinance.
Tip #1 – Beware of Regulatory Changes
Following on from the point we just made, regulatory changes can affect your ability to refinance.
For example, we’ve seen the RBA cut the cash rate several times over the course of the year. It’s now creeping closer to 0% than it has done in many years. Lenders look to the cash rate to provide them with guidance on the interest rates that they should offer on their loans.
That means cuts can prove beneficial to you, as an article on ABC News points out:
“People look at how much money they can borrow based on what they can afford to pay back. An interest rate cut boosts their borrowing power.”
In other words, when lenders lower their interest rates, your serviceability improves. If you can get in at the right time, you could fix your new mortgage at a much lower rate.
Of course, this is only one side of the coin.
Other regulatory issues can lead to lenders tightening their restrictions on loans. In this case, the falling interest rate suggests an economy that’s in trouble. This could lead to lenders taking a closer look at your finances and deciding that you can’t borrow as much as you want.
That makes the decline in interest rates a double-edged sword.
This is just one example of how external forces may affect your ability to refinance. It’s always a good idea to pay attention to the current economic climate. This allows you to time your refinancing efforts so that they’re as beneficial as possible.
Tip #2 – Try a New Bank
A lot of people make the mistake of always sticking with their current bank when they refinance. While some lenders will reward this loyalty, you also have to recognise that you could get a better offer elsewhere.
The simple fact is that banks love to attract new customers. That means they’re always willing to listen to people who have good track records on their existing mortgages.
A recent experience with a DG Institute client highlights just how much you may gain if you switch banks:
Our client came to us because they wanted to refinance so they could buy their dream home. They needed $780,000 for the purchase…
But their bank only offered them $620,000.
Obviously, the client felt shattered by this, as it wasn’t even close to what they needed. And as it turned out, it wasn’t even close to the best offer they could get from a lender.
Working with a DG Institute mortgage broker, the client started shopping around for a better deal. They eventually landed a mortgage that gave them $850,000.
That’s a $230,000 variance between lenders!
As you can see, sticking with your current lender can lead to you not getting as much as you should.
And there’s a reason why the amount you can borrow varies so wildly…
Tip #3 – Different Lenders Have Different Algorithms
Every bank or lender will follow certain processes. They’ll generally check your credit score and do a range of calculations to figure out if you can service the loan you’ve applied for.
However, the nature of those calculations varies between lenders. Each has its own metrics in place when it comes to serviceability and what they’re willing to accept. For example, some may incorporate a larger expense buffer into their calculations. Others may account for more of the income you receive from property investing when making their calculations.
Your goal is to find a lender that uses the most favourable calculations for your situation. This will enable you to maximise the amount you can borrow and, ideally, access lower rates.
This is where a mortgage broker becomes important. There are hundreds of loan products available in Australia and you don’t have the time or expertise to check them all. A good broker can sift through everything to find the best refinancing deal.
It’s Time to Refinance
As you can see, there are many benefits to refinancing your home loan. However, there are also a few obstacles that you need to consider along the way.
You’ll often find that your current lender doesn’t offer you the best deal. Plus, you need to account for the different methods that lenders use to determine your serviceability.
And of course, timing is everything when it comes to getting the best deal.
On top of all of this, DG Institute can also help you to use your tax breaks to reduce your home loan repayments. This is an especially effective strategy for property investors who want to ensure they’re maximising cash flow.
If you’d like on refinancing your mortgage or reducing your home loan interest, submit an inquiry with our team today. We may be able to help you to save thousands of dollars and repay your loan quicker.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at firstname.lastname@example.org
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.