Key Takeaways
- Refinancing can lower your home loan repayments by securing a lower interest rate, extending your loan term, or consolidating debts.
- Lower interest rates are the primary way refinancing reduces your monthly loan repayments.
- Refinancing options are available even if you're behind on payments, though your chance of being approved depends on your credit history and current financial situation.
- Seek help from home loan experts like Dark Horse Financial to find the best deal for your refinancing needs, whether you’re looking for a lower rate or more flexible loan terms.
- Home loan refinancing isn’t for everyone, especially if you plan to move soon or the costs of refinancing outweigh the savings.
- Seek professional advice from mortgage brokers or financial advisers if you’re uncertain about the refinancing process or your eligibility.
- Refinancing could be an effective way to free up cash for other financial goals, such as paying off high-interest debt or investing in property renovations.
If you’re looking for ways to reduce your monthly financial costs, refinancing your home loan could be the solution you need. Home loan refinancing is a popular strategy used by Australian homeowners to reduce their loan repayments and potentially save thousands of dollars over the life of the loan. In this article, we’ll explore how refinancing works, how it can help lower your repayments, and the steps you can take to refinance your mortgage in Australia.
What is Home Loan Refinancing in Australia?
Home loan refinancing refers to the process of replacing your existing home loan with a new one. Property owners typically refinance to secure a better interest rate, reduce their repayments, or change the terms of their loan. Refinancing doesn’t necessarily mean changing lenders, though it often involves switching to a new provider to find a loan product that better suits your current financial situation.
In Australia, refinancing can be an effective way to lower home loan repayments, especially when interest rates drop or when you can access a loan with better terms. The goal is to reduce your mortgage repayments, but the ultimate outcome depends on several factors, such as your loan type, your new interest rate, and the structure of your loan.
Why Consider Refinancing to Get Lower Repayments?
Refinancing your mortgage can help you reduce your monthly financial burden by lowering your repayments. This can free up money for other important expenses or allow you to put extra funds into savings or investments. There are several key reasons why homeowners in Australia choose to refinance their loans:
1. Potential Loan Interest Rate Reduction
One of the most common reasons Australians refinance their home loans is to take advantage of lower interest rates. If your current loan has a high interest rate, refinancing to a lower rate can result in significant savings on your monthly repayments.
For example, if interest rates have dropped or if your credit score has greatly improved since you took out your loan, you can potentially secure lower rates on a new loan, saving you hundreds or even thousands of dollars over the life of your mortgage.
2. Changing Loan Terms
Refinancing also provides the opportunity to change the terms of your loan. You can reduce the loan term to pay off your mortgage more quickly, or extend the term to reduce monthly repayments. Shortening the loan term typically leads to higher monthly repayments, but you’ll pay off the loan sooner and save on interest costs in the long run.
On the other hand, if you’re looking to ease your monthly cash flow, extending the loan term can lower your repayments, even though you may pay more in interest over time.
3. Accessing Home Equity
If the value of your property has increased since you first purchased it, you may have gained equity in your home. Refinancing allows you to access this equity and use it for various purposes, such as funding home renovations, consolidating debt, or investing in business or other properties.
How Does Refinancing Reduce Loan Repayments?
When you refinance your home loan, the new loan typically has a different interest rate or loan term. If the new interest rate is lower than your current rate, your monthly repayments will decrease because you’re paying less interest on the principal loan balance. In some cases, you may also be able to extend the loan term, which would further reduce the monthly repayment amount, although this would increase the overall cost of the loan in terms of interest paid.
Will I Save Money by Refinancing My Mortgage?
Refinancing your home loan can save you money, but it depends on your specific situation. In general, refinancing offers the opportunity to reduce your interest rate, which directly lowers your monthly repayments. However, there are costs associated with refinancing, such as application fees, discharge fees, and ongoing account-keeping fees, that must be taken into consideration.
For refinancing to be worth it, the savings from the lower interest rate should outweigh the associated costs.
To determine whether refinancing will save you money, it’s important to:
- Seek help from a lending expert like Dark Horse Financial to ensure your new loan is more beneficial than your current one.
- Calculate the total cost of refinancing (including fees).
- Consider how long you plan to stay in the home.
How to Refinance Your Mortgage to Reduce Repayments
Refinancing a home loan to lower repayments involves several steps. Here are the steps to refinance your home loan in Australia:
Step 1: Apply Easily Online
Apply for refinancing through our online form. We’ll get back to you quickly, and we’ll help assess your current financial situation to find the best solutions to lower your monthly repayments. We can help you secure the best rates and terms that align with your needs and goals.
Step 2: Submit Your Application
Once you agree on the right lender and loan product, we’ll submit your application on your behalf. Be prepared to provide documents if you’re applying for a full doc loan. Approval can range from a few days to weeks, but we’ll make sure to meet your required timeline.
Step 3: Review the Offer and Finalise the Loan
Once your application is approved, the lender will make a formal offer. Review the terms of the offer carefully, including the interest rate, fees, and loan structure. If everything looks good, you can proceed with signing the loan agreement and finalising the refinancing process.
Is Refinancing Worth It to Lower Monthly Costs?
For many Australian homeowners, refinancing is worth it if it leads to lower monthly costs, especially if the interest rate is reduced. However, it’s essential to consider the long-term impact of refinancing. If you’re planning to stay in your property for several years, refinancing can lead to significant savings. But if you’re only planning to stay for a short time, the costs of refinancing may outweigh the benefits.
What Fees Should I Expect When Refinancing to Lower Repayments?
Refinancing fees in Australia are typically nominal or not charged at all, especially by mainstream lenders. However, some fees may apply when transacting with a low-doc lender. These fees can include:
- Exit Fees: Fees charged by your current lender for paying off your loan early.
- Application Fees: Fees charged by the new lender to process your refinancing application.
- Valuation Fees: Costs associated with valuing your property for the new loan.
- Settlement Fees: Fees to cover the legal and administrative costs of settling your old loan and establishing the new one.
When taking out a low-doc refinancing loan, be sure to factor these costs (if applicable) into your decision to ensure that the savings from lower repayments outweigh the costs involved.
Can I Refinance if I’m Behind on My Home Loan?
Refinancing may still be possible if you’re behind on your home loan, but it can be more challenging. Lenders typically want to see a history of regular payments, and being behind on your mortgage can signal to them that you’re a higher-risk borrower. However, if your financial situation has improved and you can show the ability to make regular payments again, refinancing might still be an option.
If you’re behind on your home loan and considering refinancing, it’s important to:
- Contact Your Current Lender: Before pursuing refinancing, speak with your existing lender to understand the full extent of your arrears and whether they are willing to offer any options to help you catch up on your repayments. They may allow you to refinance internally or offer solutions like a repayment holiday or a restructure to reduce your repayments temporarily.
- Check Your Credit Report: If you’ve fallen behind on your payments, this could negatively impact your credit score, which in turn could affect your ability to refinance. Make sure your credit report accurately reflects your situation. If you’ve missed payments due to a temporary hardship, some lenders may still consider you for refinancing if your credit score is otherwise healthy.
- Look for Lenders Who Specialise in Refinancing for Difficult Situations: Some lenders specialise in offering refinancing solutions to borrowers with less-than-ideal credit histories. These lenders may be willing to take a more holistic view of your financial situation rather than simply looking at missed payments.
- Consider a Mortgage Broker: If you’ve fallen behind on your mortgage, working with a mortgage broker like Dark Horse Financial can be a smart strategy. Brokers often have access to a wide range of lenders, including those that may be more flexible with clients who have payment difficulties.
While refinancing in such a situation is more complicated, it’s not necessarily out of reach if you’ve regained your financial footing and can demonstrate your ability to make consistent payments moving forward.
Can I Refinance My Home Loan if I’m Self-Employed?
Yes, self-employed borrowers can refinance their home loans. Lenders recognise that many Australians run their own businesses and offer tailored solutions. If you’re self-employed, you can typically refinance by providing alternative forms of income verification. For full-doc loans, you’ll typically need to provide an ATO notice of assessment, business financials, and bank, credit card, and savings statements. For low-doc loans (sometimes known as alt doc loans), you can demonstrate your ability to make repayments with by showing your income on your last 2 BAS or with the support of an accountant letter.
Refinancing can be a smart way to lower your repayments, especially if your business income has stabilised or improved since you first took out your loan. Even those currently with low-doc home loans may be eligible to refinance to a more competitive rate or switch to a full-doc loan with better terms, depending on their current financial position.
Final Thoughts
Refinancing to lower home loan repayments can be a great way to reduce your financial strain, free up cash for other needs, and potentially save a substantial amount of money over the life of the loan. By lowering your interest rate, changing the terms of your loan, or consolidating debt, you can reduce your monthly payments and overall borrowing costs.
However, it’s essential to carefully evaluate the costs and benefits before making any decisions. Keep in mind that refinancing comes with associated fees, such as exit fees, application costs, and other charges, which must be considered to determine whether it will save you money in the long term.
Remember, refinancing may not always be the best choice for everyone. If you’re only planning to stay in your home for a short period or if the costs of refinancing outweigh the benefits, it may not be worth the effort. However, for those who plan to stay long-term or are looking for immediate relief in their budget, refinancing can be a smart financial move.
If you’re in doubt or need personalised advice, consider speaking with a financial adviser or mortgage broker who can guide you through the process and help you find the best refinancing solution for your situation.
Get Lower Monthly Repayments
If you want to lessen your monthly costs, you can go for a mortgage refinance to decrease what you pay in monthly home loan repayments. Dark Horse Financial specialises in home loans and refinancing solutions. We’ll help you find the best loan products and lenders that align with your needs. Reach out today to learn more.
Disclaimer: Loans and the benefits of loan products are available to approved applicants only. Information on this page is general in nature, it does not take into account your personal situation. This information is not intended to replace professional advice and should not be relied upon for any reason. You should always seek professional advice for finance, tax and accounting matters before making a decision or taking any action.