Refinancing Basics: What Homeowners Should Know - Part I

Refinancing your home loan may seem overwhelming, but for many Australians, it's a financial decision that may result in savings and increased financial flexibility. Understanding the ins and outs of refinancing can help you get the most out of your loan. This is a simple guide to help you get started.

At HomeStart, we know we’re just the start of your home ownership journey. After a few years with us, the equity in your home may have increased, allowing you to refinance your loan to another lender with terms that better align to your current financial needs. This also allows us to continue helping those who need it most.

Refinancing your home loan may seem overwhelming, but for many Australians, it's a financial decision that may result in savings and increased financial flexibility. Understanding the ins and outs of refinancing can help you get the most out of your loan. This is a simple guide to help you get started.

What is refinancing?

Refinancing is the process of replacing your current home loan with a new one, usually to take advantage of a more competitive home loan on offer in the market. Essentially, you pay off your current loan with a new loan that has features and benefits more suited to your current circumstances. You build equity in your home by paying off some of your home loan balance or when your home has increased in value. The more equity you have, the easier it is to refinance.

Why refinance?

Some common reasons why people refinance their loans include:

Lower interest rates: Even a small reduction can lead to big savings over the life of your loan. For example, reducing your rate from 7.0% to 6.0% on a $500,000 mortgage can save you more than $100,000 in interest over 30 years.
Better loan features: Over time, your financial situation and needs can evolve. Refinancing allows you to switch to a loan that better suits your current needs, such as one with an offset savings account, a redraw facility, or the ability to make extra payments without fees.
Access equity: As your loan balance decreases over time and the value of your home likely increases, refinancing can help you unlock some of this equity. You can use those funds for home renovations, investments, or other expenses.
Change your loan type: Perhaps, you started with a variable-rate loan but now prefer the stability of a fixed-rate loan, or vice versa. Refinancing can help you switch to a loan type that better suits your current financial needs.
Streamlining your finances: Sometimes, people refinance to consolidate their financial accounts with one institution. So, your mortgage, checking, savings, and investments all live in one place. Reduced logins, unified statements, and easy transfer of funds make things easier. You may also qualify for perks like lower rates or fewer fees.

How do you know if you’re ready to refinance to another lender?

If you have a good repayment history and a reasonable amount of equity in your home, you may meet the lending criteria of other lenders and be ready to move on from HomeStart.

We'll cover the refinancing process and the steps involved in our next blog post. Stay tuned!

HomeStart recommends that you seek your own independent financial and/or legal advice prior to making decisions about your financial needs.