Refinancing a home loan can be worth considering when a borrower's financial circumstances, property position or lending objectives have changed. However, refinancing is not simply a matter of finding a lower advertised interest rate. Costs, loan features, lender requirements, remaining loan term and the borrower's broader financial position all deserve consideration.
FinanceCorp provides credit assistance for consumers exploring refinancing and other lending solutions. Its brokers gather information about requirements, objectives and financial circumstances before explaining and comparing available options from the relevant lender panel, subject to accreditation and lender criteria.
Why Do Borrowers Consider Refinancing?
There can be several reasons a homeowner may explore refinancing. A borrower might be reviewing their current interest rate, looking for different loan features, considering a change in repayment structure or wanting to consolidate eligible debts.
Changes in personal circumstances can also prompt a review. Income, household expenses, property value, outstanding loan balance and financial objectives may all look different several years after the original home loan was arranged.
Refinancing should therefore begin with a broader question: does the current loan continue to meet the borrower's needs?
Start by Reviewing Your Existing Loan
Before comparing alternative loans, homeowners should understand what they already have.
Review the current interest rate, outstanding balance, remaining term, repayment amount and applicable fees. It is also worth checking whether the existing loan provides features such as an offset account or redraw facility and whether those features are being used.
Fixed-rate borrowers should pay particular attention to the terms applying to their existing arrangement. Refinancing or changing a loan before a fixed period ends may involve costs or other consequences, depending on the lender and loan terms.
A home loan health check can be a useful starting point for identifying areas that deserve closer attention.
Look Beyond the Advertised Rate
Interest rates can be an important part of a refinancing decision, but they should not be considered in isolation.
A loan with a lower advertised rate may have different fees, features or conditions from an existing loan. Similarly, a borrower may value flexibility or a particular loan feature more highly than a small difference in the headline rate.
The overall cost and suitability of a loan depend on the individual arrangement and borrower circumstances.
FinanceCorp can explain and compare available options from its lender panel. The company has access to over 25 top lenders and hundreds of loan products, although the lenders and products considered for an individual consumer depend on broker accreditation, lender-panel access, the type of lending requested, information provided and the consumer's circumstances.
Consider the Costs of Refinancing
Switching lenders can involve costs. Depending on the existing and proposed loan arrangements, these may include discharge fees, application or establishment fees, valuation costs, government charges or other expenses.
A homeowner should consider whether the potential benefits of refinancing justify the costs associated with making the change.
This is especially important where the expected benefit is based primarily on a lower interest rate. A reduction in the rate does not automatically mean refinancing will produce a better overall financial outcome once applicable costs and loan terms are considered.
Think About the Loan Term
Refinancing can also affect the length of time a borrower remains in debt.
For example, consolidating debts into a home loan may result in a lower repayment amount in some circumstances because the debt is spread over a longer period. However, extending the repayment period can potentially increase the total interest paid over the life of the debt.
Borrowers should therefore consider both the immediate repayment position and the longer-term implications of any proposed change.
Debt Consolidation Requires Careful Consideration
FinanceCorp also provides assistance with debt consolidation. Combining eligible debts into a new lending arrangement can simplify multiple repayments, but it is not automatically appropriate for every borrower.
The type of debt being consolidated, its existing interest rate, remaining term, fees and the proposed repayment period all matter. Consumers should also consider the behavioural and financial implications of converting shorter-term debts into longer-term borrowing secured against property, where applicable.
A broker can help explain available lending options, while appropriately qualified financial, legal or taxation professionals can provide advice where the circumstances require it.
When Might a Review Make Sense?
There is no single point at which every homeowner should refinance. Instead, a review may be worth considering when there has been a meaningful change in circumstances or when the existing loan no longer appears aligned with current objectives.
Potential triggers include:
- A fixed-rate period is approaching expiry.
- The borrower's financial circumstances have changed.
- The homeowner wants to investigate different loan features.
- The existing loan is being reviewed alongside broader financial planning.
- The borrower is considering debt consolidation.
- The homeowner's property and lending position have changed since the original loan was arranged.
These situations do not automatically mean refinancing is appropriate. They simply provide reasonable opportunities to review the existing arrangement.
What Does a Mortgage Broker Do?
A mortgage broker can help consumers navigate lending options from a relevant lender panel.
FinanceCorp's brokers gather information about the consumer's requirements, objectives and financial situation. They may then explain and compare available lending options, subject to the relevant broker's accreditations, lender-panel access and lender criteria.
This can be useful for homeowners who do not want to approach multiple lenders individually. It is important, however, to understand that a broker does not necessarily have access to every lender or loan product available in the market.
Questions to Ask During a Refinancing Review
A productive refinancing conversation should go beyond asking whether a lower rate is available.
Homeowners may want to ask:
- What costs could apply if I refinance?
- What loan features would I gain or lose?
- How would the proposed repayment structure compare with my existing loan?
- Would changing the loan term affect the overall cost?
- Are there issues associated with my current fixed-rate arrangement?
- What documentation will be required?
- Which lenders and products may be considered for my circumstances?
The answers will depend on the individual's situation and the lenders available through the relevant broker.
Explore Your Options With FinanceCorp
Refinancing is ultimately a decision about whether a different lending arrangement may better suit a borrower's current circumstances and objectives.
FinanceCorp can assist consumers by providing credit assistance and discussing available lending options from its lender panel. For homeowners considering refinancing, a conversation with FinanceCorp can help clarify what information is required, what factors should be considered and which available options may warrant further investigation.
A refinancing decision should be based on the complete lending picture rather than a single advertised rate.
Important Information: This article provides general information for educational purposes only. It does not take into account your objectives, financial situation, needs or borrowing requirements. It is not a recommendation to apply for any particular loan, lender or credit arrangement.
FinanceCorp provides credit assistance under Australian Credit Licence 395037. The lenders and products considered depend on broker accreditation, lender-panel access, the type of lending requested, the information provided and the consumer’s circumstances. FinanceCorp does not compare every lender or loan product in the market.
All lending is subject to applicable enquiries, verification, preliminary assessment, lender criteria, approval, terms, conditions, fees and charges. Seek assistance from appropriately qualified financial, legal, taxation, property or credit professionals where required.
