There are a number of different reasons why you might be considering refinancing your mortgage. Your financial situation may have changed since you first took out your home loan, or you might be wondering whether your interest rate is still competitive. 

Even if you’re happy with the price of your regular repayments, it might be worth using a refinance calculator to find out the potential benefits of switching your mortgage, including the savings you could make.

What is Refinancing?

Refinancing is the process of taking out a new mortgage to pay for an existing loan. Usually, this means moving your mortgage from one lender to another, but you can refinance with the same lender (although this is sometimes referred to as a loan transfer). The process should be less complex than securing the initial mortgage, but you may still need to get the property valued.

How Do I Use This Refinance Calculator?

Using a refinance calculator should be a fairly straightforward process, but you will need to make sure you enter all the information accurately to get a good idea of any potential savings. The steps you need to take are:

  1. Enter your current loan balance and your monthly repayments
  2. Enter the number of years remaining on the loan term
  3. Enter your current interest rate
  4. Enter the loan type (whether it’s an investment or not)
  5. You may also need to enter some basic information for the loan you are comparing to

After you’ve completed these steps, the calculator should give you a broad indication of whether or not it might be worthwhile to refinance your home loan. However, the calculator will not take into account your personal finances, the stability of your employment or all additional switching costs (e.g. exit fees and upfront costs). You may need to speak to a financial adviser to help you consider these factors.

Things You Should Know

It’s important to keep in mind that this calculator only provides an estimate based on the information provided and does not necessarily reflect the result you would get if you were to complete a full application. It also does not serve as pre-qualification for loan approval.

The calculation is based on current interest rates and lending criteria, which are subject to change at any given time. The information provided by the calculator also doesn’t take into account your personal finances or any additional features or grants that may be relevant to you. Calculations are meant as estimates only and it is advised that you consult with loan specialists about your specific circumstances. 

How This Refinance Calculator Works

The refinance calculator helps you estimate your new monthly mortgage repayments using the information that you enter about your current loan compared to your potential refinanced loan. It calculates how much you could save monthly and in total (over the life of the loan).

How is My Refinance Calculated?

The calculator will evaluate the data you input in order to give you an estimate of any potential savings. The factors that will be considered in the calculation include:

  • The details of your current home loan (including the remaining loan amount)
  • The details of the replacement home loan
  • The length of the repayment period
  • Refinancing costs
  • Current interest rates

The calculator will use current interest rates to calculate repayments, but you should keep in mind that these might change when you apply for the loan. Repayment costs might include application fees and document preparation, but the calculator may not be able to take into account all break fees and ongoing fees.

Interpreting the Results

Before interpreting the results, you should consider whether your priority is reducing the monthly payment or the interest you’ll pay over the lifetime of your loan.

If both the monthly repayments and the interest over time have reduced, this tells you that refinancing may be a very good idea. If you’re looking to shorten your loan term and pay less interest over time, your monthly repayments will usually go up. If the recalculated repayments are within your budget, this might tell you that refinancing suits your needs.

If you are looking to refinance in order to pay lower monthly repayments, the calculator can tell you whether or not this is feasible. You might need to consider how much more you’ll pay in the long run. If both the monthly repayments and the interest have increased, it might not be appealing to refinance.

What Factors Should I Consider When Thinking About Refinancing?

Things you should consider before deciding to refinance your home loan include:

  • Current interest rates as well as the interest rate environment – you may wish to switch home loans to get a lower interest rate, but you should consider the possibility that the interest rate might increase after you’ve switched.
  • The value of your property – Your borrowing power may be greater if your property has risen in value since you bought it.
  • Cost of refinancing – Application fees, valuation fees and break fees will need to be factored into your decision.
  • Your credit rating – If you have a poor credit score you may not be able to qualify for refinancing your home loan.
  • What your motives are for refinancing – Do you want extra features such as an offset account or redraw facility? Do you want to change the term of your loan? Do you want to change from a variable to fixed interest rate or vice versa?

The Benefits of Refinancing

There are a number of reasons why you might be considering refinancing your home loan. Refinancing could offer you savings on monthly repayments and interest rates, or it could offer you additional features that you don’t have on your current loan.

Shorten your loan term

If you’re looking to shave a few years off your loan by paying it off sooner and reducing your accumulated interest then refinancing can be a good way to help you do this. This is a good option if you have the capacity to pay slightly higher monthly repayments. However, it could also make things difficult if your financial situation changes down the road.

Lower Your Interest Rates

Interest rates regularly fluctuate, so it might be a good idea to check whether your current mortgage is still competitive. A lower interest rate could ultimately save you thousands of dollars over the lifetime of the loan on interest repayments.

Convert Your Mortgage

You may wish to refinance your home loan if the current structure of your interest rate (whether it be fixed or variable) no longer suits you. You might also be considering a split rate mortgage, which means that part of your mortgage will have a fixed rate and the other part will have a variable rate.

Improve Your Loan Features

There may be features available on a home loan with another lender that benefit your circumstances. You might be able to open up an offset account, gain access to a redraw facility or make additional repayments to your home loan account.

Frequently Asked Questions 

How Much of a Deposit Do I Need for a Home Loan?

The minimum required deposit is 10%, but 20% is usually preferred. If you pay a deposit that is less than 20%, you’ll have to take out lenders mortgage insurance (LMI); which is a premium that gets added on to your home loan. You may be required to pay LMI when you refinance.

Does Homestar Finance Offer the First Home Loan Deposit Scheme?

The First Home Loan Deposit Scheme is a form of government assistance that allows first home buyers to save on deposits and LMI. Find out more information here.

What is the Difference Between Refinancing and Switching Home Loans?

Refinancing is often referred to as switching home loans, and the two terms are often used interchangeably.

What is a Comparison Rate?

Lenders are required to display a comparison rate next to the interest rate to give you a better indication of the true cost of the loan. It takes into account some of the other fees and charges related to the loan.

What is LMI?

LMI stands for Lenders Mortgage Insurance. This is a premium that you have to pay if you pay a deposit of less than 20% of the asking price on your home loan. Lenders Mortgage Insurance is required to ensure the bank a return on the investment for high risk loans.

Should You Refinance Your Home Loan?

Refinancing can be a good idea if it saves you money on principal and interest repayments. However, it depends on your personal financial circumstances as well as your plans for the future. You should speak to a financial adviser or home lending specialist in order to properly weigh your options and make the best decision for you.

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