6 Things to Consider Before Refinancing and Is It Worth It?

The decision to refinance your home loan can feel overwhelming, but it’s important to understand the process and how it could offer you a range of benefits. To help you on your way, we’ve pulled together a guide on when it could be the best time for you to refinance, and a few points to consider before you make the switch.

What is refinancing?

Refinancing is the process of taking out a new home loan to replace your existing home loan - this could be with your current lender, or with a completely different lender.

When’s the best time to refinance?

There’s no right or wrong time to refinance your home loan - the best time to switch depends on your individual situation. Some reasons to consider refinancing include:  

• You’re on the hunt for a more competitive interest rate,  
• You’re looking to access the equity in your home,  
• You want to reduce the loan term or  
• Your fixed rate is coming to an end  
• You want to consolidate your debt  
• You want to access better features with a different lender or home loan  

Ultimately, the right time to refinance depends on where you’re at right now and what your plans are for the future. Here are 6 important factors to consider before refinancing and applying for a new loan.

Factors to think about before you refinance

Before you take the plunge and make the switch, it’s important to carefully consider the options available and is it right for you.

1. Why am I refinancing?

One of the most important points to think about is your motivation for refinancing your home loan. For example:

• Are you looking for a lower interest rate?
• Are you looking to access equity to fund a renovation?
• Do you want to access features and facilities that currently aren’t available with your existing lender?

Knowing the why behind your decision can help you to better understand your needs, so you can find a new loan that best suits you.  

2. How much will it cost me to refinance?

You’re probably already familiar with the different fees and costs associated with setting up a new home loan. From upfront fees and ongoing costs, familiarise yourself with the costs associated with exiting your existing home loan, and setting up a new one.  

When it comes to closing your home loan with an existing lender, some costs associated include:

• Discharge fees
• Break fees if you’re fixed-rate hasn’t completed

When it comes to setting up your home loan with your new lender, some costs associated include:

• Establishment or application fees
• Property valuation fees
• Settlement fees
• Lenders Mortgage Insurance
• Service Fees

Including these figures in your calculations can help you to work out whether refinancing makes sense financially. And while it might set you back a few dollars in the short term, if there are more savings to be had over the life of your loan, it still could be well worth forking out to refinance now.  

Learn more about costs associated with refinancing your home loan here.  

3. Will I have to pay lender’s mortgage insurance?

If you purchased your property with less than a 20% deposit, you’ll know just how expensive lender’s mortgage insurance (LMI) can be. LMI acts as a form of protection for banks and lenders in the event that you’re not able to make your mortgage repayments.

If your loan to value ratio (LVR) is still more than 80%, you might have to pay another round of LMI with your new lender. Before you refinance, it can be worth doing some quick math to work out just how much home equity you’ve built up.  

Your home equity is the portion of your home that you own outright and to work out how much equity you have, simply minus the amount owning your mortgage from the current market value of your property. Learn more about equity here.

4. Does the loan meet my needs?

Once you understand the reason or reasons behind your decision to refinance, you should have a better idea of what you’re looking for. It’s important to find a loan that works for you, whether you’re after a lower interest rate, access to new features, want the ability to access your equity or the opportunity to consolidate your debt.

5. Is my current lender open to negotiations?

If you’re considering switching lenders, it could be worth approaching your existing lender to see if they’re willing to negotiate. Before you ask the question, make sure you have a good idea of exactly what you’re after.

6. How will refinancing impact my credit score?

Every time you refinance, it impacts your credit score, and a rejected refinance application,  can negatively affect your credit rating. Because your credit score is one of the factors lenders consider when it comes to your application, if you have an already average rating, you could risk getting knocked back for refinancing. Learn more about credit scores and how they’re calculated here.  

Refinancing your home loan is a huge decision, so it’s important to make sure you do your research and consider the different factors that are important to you. Learn more about how Unloan can help you make the switch here.

This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval; satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000. 

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

There are no fees from Unloan. However, there are some mandatory Government costs depending on your state when switching your home loan. For convenience, Unloan adds this amount to the loan balance on settlement.

* Other third-party fees may apply. Government charges may apply. Your other lender may charge an exit fee when refinancing.