As the cost of living continues to climb and more borrowers roll off super-low, pandemic-era fixed rate mortgages, refinancing has become the hot trend in housing finance. But there are some refinancing pitfalls to avoid.
It may not be as big a barbecue stopper as chatting about house prices, but refinancing a home loan is occupying the minds of many Australians.
Refinancing is when you pay out your existing home loan with a new home loan, either with your current lender or a new creditor. Home loan refinancing volumes hit a record high of $21.5 billion in July 2023, up 21.8% on the same month the previous year, according to the Australian Bureau of Statistics.
Refinancing isn’t only about the interest rate
Most people refinance to get a better interest rate on their home loan. But don’t just immediately choose the one with the lowest rate. You should also look at other features when you’re comparing loans.
Being able to make extra payments and having an offset account, for example, could reduce your interest payments by more than having a slightly lower interest rate on a loan with only basic features. A redraw facility could also be useful.
The cashback isn’t always worth it
Some lenders have been offering cashback in the thousands to attract borrowers looking to refinance, but these incentives often come with conditions. You may have to take out a loan for a minimum amount, and it could be anything from $200,000 to $400,000, to get the cashback. That may be more debt than you need or want.
So, don’t be blinded by the cashback. You may save more by choosing a lower interest loan with another lender.
Don’t forget, refinancing costs money
It can cost money to set up a new loan, with application costs, legal and other fees. There may also be break or exit fees involved if you are currently on a fixed term loan and within your term.
If the loan to valuation (LVR) ratio is more than 80%, you may also need to pay for lenders mortgage insurance (LMI).
You can use the mortgage switching calculator on the government’s Moneysmart website to see how long it could take to recover refinancing costs and if you’re better off.
Check your credit score before you apply for refinancing
Your life and circumstances may have changed since you applied for your current loan. And with interest rates now higher, you may not qualify for as large a loan amount as previously.
Your potential new lender will also want to look at your credit report, to see how reliable you are with repayments and bills. So, check your credit report and your credit score first yourself to make sure there aren’t any surprises.
Don’t forget, you can ‘bank differently’
When you’re thinking about refinancing, don’t only look at the big banks. As a worker in health care, you have your very own bank: Health Professionals Bank.
When you apply for a loan, Health Professionals Bank can consider your regular overtime payments, not just your base pay2. The bank also offers eligible essential workers an extra 0.05% p.a. discount (Variable rate only) off the interest rate on its Your Way Plus Home Package package.3
And that could make a big difference in balancing your budget.
Health Professionals Bank | Bank differently
Book a convenient time to talk to a lending specialist from Health Professionals Bank about your refinancing options
All interest rates quoted are subject to change.
This information is general in nature and does not take your personal objectives, financial circumstances or needs into account. Consider its appropriateness to these factors before acting on it.
Membership eligibility applies to join the Bank. Membership is open to citizens or permanent residents of Australia who are current or retired employees in the Australian health sector or are family members of members (i.e. shareholders) of the Bank. Health Professionals Bank is a division of Teachers Mutual Bank Limited ABN 30 087 650 459 AFSL/Australian Credit Licence 238981.
1 Australian Bureau of Statistics, Lending indicators – July 2023, https://www.abs.gov.au/statistics/economy/finance/lending-indicators/jul-2023
2 All applications for credit are subject to our responsible lending criteria. Fees and charges apply. You can find our Consumer Lending terms and conditions online at our website or from any of our offices.
3 Eligible Essential workers include: School Principal, Faculty Head, Commissioned Fire Officer, Commissioned Police Officer, Ambulance Officer, Intensive Care Ambulance Paramedic, Supervisor Police Officer, Police Officer, Senior Fire Fighter, Fire Fighter, Registered Nurse, Registered Midwife, Registered Mental Health Nurse, Registered Developmental Disability Nurse, Enrolled Nurse, Pre-Primary School Teacher, Primary School Teacher, Secondary School Teacher, Special Needs Teacher, Special Education Teachers, University Lecturer, University Tutor, Vocational Education Teacher, English as a Second Language Teacher.