If the prospect of lower monthly repayments, an offset account to reduce home loan interest and other features that reduces the lifespan of your mortgage appeals to you, then refinancing your home loan is definitely something you should look into. Though the question is, just how regularly should you look for new and better deals? The answer depends on a few factors, including your current circumstances in terms of home finance.
Looking for deals every year
The home loan market changes a lot in twelve months. The loan you took out a year ago may not look as attractive in the present day. Using a broker or looking at a few websites and comparing your home loan against other mortgage products every year gives you a good baseline to follow when you do decide to refinance your home loan. If you have greater equity in your home, you could be eligible for offset accounts, lower interest rates (significant enough to make a difference – not full percentage points!) and lines of credit.
Looking for deals after a rate change
Looking for new and better home loan deals after a rate change is also beneficial, as it prompts lenders into working harder to keep your business. If you find a better overall deal and your bank can’t match it, it’s easier than ever to park your mortgage elsewhere. Banks and lenders know it’s a competitive market for home loans, and should be more flexible when competition heats up. If your lender doesn’t pass on the full rate cut, or increases rates beyond the RBA’s official rise, this is definitely a prompt to search for a new home loan.
Refinancing – costs vs. benefits vs. time
Is it worth refinancing all the time? If you do not own sufficient equity in your home, it may not be worth it. You may have to buy Lender’s Mortgage Insurance that can prove costly. Also, you may have to provide all the documentation and proof of income again, just as you did when you applied the first time. (Want to save time? A mortgage broker can handle much of this for you.)
If you scour the market and can only find loans with percentages of percentages lower than what you’re on, the benefit may not be worth the time – especially if you have to pay extra fees. A $400,000 loan at 4.1% p.a means repayments of $1,931 per month over 30 years. A dip of just 0.5% can save you $114 per month, or $1,368 per year. That’s almost one month’s saving over the old rate. It’s true: refinancing can save you money!