It’s often easy to assume that once you’ve reached settlement on a new home loan, you don’t need to worry about it much (unless you’re at risk of defaulting on your loan repayments, or if you’re close to the end of your loan term). 

However, once you’ve had a home loan for a few years, it’s a good idea to consider refinancing your home loan for a better rate. When you refinance your mortgage, you have the option to either stay with your current lender, but with a lower interest rate, or you can opt to move your home loan across to a new lender (that may offer better rates and additional features that save you more money over time). 

Australian individual borrowers have been refinancing their loans in droves over the past 18 months – the Australian Bureau of Statistics revealed in July 2021 that $17.2 billion worth of home loans were refinanced in that month alone. 

Any borrower’s decision to refinance will be dependent on a long list of factors. We’ve compiled this article to help work out the pros and cons of refinancing your mortgage during the COVID-19 pandemic, and what the best solution might be for you:  

Why should I refinance my mortgage? 

For starters, you can find yourself saving hundreds of dollars from your usual monthly repayments when you opt to refinance your home loan. That extra money can go to saving up for an investment property, paying off your mortgage more quickly, or to other major financial goals on your list. 

Home loan refinancing typically means switching your current home loan to a new one – whether with your current lender or a new mortgage lender altogether. You can refinance to get a lower rate and save thousands in interest payments, but you can also refinance your home loan to borrow more money, switch to a more suitable loan type or to access extra financial features like an offset account or redraw facility. 

With a record number of home loan lenders offering loans around 2% or lower, this year may be one of the best times to find a better deal. For many borrowers, paying off a home loan isn’t necessarily a straight path – sometimes, it can make sense to make a few detours in order to get the most out of your loan. 

Why shouldn’t I refinance my mortgage? 

Although you may have qualified for a home loan in the past, that doesn’t always guarantee you’ll requalify with a new lender. When it comes to refinancing your mortgage, you will need to submit a new application as you did the first time around – and there are a few key things to be mindful of in the process. 

Different home loan lenders will have different terms, eligibility criteria, terms and conditions when processing a refinancing application. All loan applications within Australia are subject to final lender approval, which includes the lender reviewing your ability to make repayments, Loan-to-Value Ratio, debt to income ratio, status of employment or any other unique financial circumstances that may impact either the lender or borrower. 

If your income, proof of deposit or status of employment have changed since your previous application – or if you’ve previously defaulted on home loan repayments – it could negatively impact your chances for approval. Additionally, if you get denied for a new loan application it will be reflected in your credit and loan application history, and may make the next refinance application more difficult. 

If your loan-to-value ratio (LVR) is quite high, lenders will also take this into consideration when reviewing your application in credit. The size of your LVR typically relates to the amount of debt you may have – so the lower the LVR you have,  the more likely you will get a lower interest rate. 

If you are thinking of refinancing your mortgage, check out Homestar’s home loan refinancing page for more information. 

 

Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.