Refinancing your current home loan means you’re taking out a new loan to replace your current one. There are a number of advantages to doing this, like giving you more flexibility and saving money.

Given that you are required to apply for a new home loan, likely with a different lender, refinancing means collecting the same documentation you needed for your initial loan. That includes things like ID, payslips, and bank and credit card statements. Additionally, you will need to submit the details of your financial situation and estimated living expenses.

The reasons to refinance vary between each borrower, however, there are a number of benefits.

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Lower interest rate

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The most obvious advantage of refinancing is accessing a new loan product that has a lower interest rate. That means your weekly or monthly payments will be lower.

It’s important to weigh up those savings with the costs that come with refinancing such as loan application fees, government fees, transfer and registration fees or any monthly account fees.

If you’re refinancing and your LVR is over 80%, you could be required to pay LMI, so it’s important that you have a valuation upfront to avoid finding yourself in that situation.

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Switch between variable/fixed rates

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When taking out a new loan product, it’s possible to select a rate option that suits your personal situation. That could mean opting to lock-in some – or all – of your mortgage with a fixed interest rate.

Fixed rates can be advantageous if you believe mortgage rates are likely to increase in the future. They can also help you budget more effectively as you’ll know what your repayments are going to be for a set period of time.

However, fixed-rate loan products are often subject to fees if you want to break them early. It’s also worth considering that the interest rates on fixed-rate loan products are often priced based on the expectation of future interest rate movements, meaning that if the market believes rates are moving higher, you’ll be paying higher rates on a fixed-rate loan compared to a variable loan.

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Access equity

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One of the most common reasons to refinance is to access the equity in your property. If property prices in your area have increased in value, you might be able to tap into that new equity.

Borrowers typically put that money towards the purchase of another property or use it to improve the current property through a renovation.

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Consolidate debt

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If you have a number of debts that attract high interest rates, such as personal loans, car loans or credit card debt, then it might be worth considering rolling those debts into your mortgage through refinancing.

That will lower your overall monthly repayments and you can use those additional funds to pay down the debt faster.

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Improved loan features

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These days there are a host of home loan features that you can take advantage of to improve your financial position and give you more flexibility.

The most common features include offset accounts, redraw facilities, the ability to make flexible repayments or even the ability to take a repayment holiday.

By refinancing to a more suitable loan, you can cherry back the features you need to make the most of your home loan.

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