How to Refinance Your Home Loan for a Better Deal

Unlocking New Opportunities: Why and How to Refinance Your Home Loan

Refinancing your home loan can seem like navigating through a maze of rates and terms, but it’s often worth the journey. By replacing your existing mortgage with a new one, you typically aim for a better interest rate, lower monthly payments, or a different loan term. This strategic move can free up cash, consolidate debt, or accelerate your path to paying off your home sooner – as long as it is done the right way!

Definition and Benefits of Refinancing

Refinancing involves taking out a new mortgage to replace your current one. This switch can offer several advantages:

  • Reduced Interest Rates: Lock in a lower rate to decrease your monthly payments.
  • Debt Consolidation: Combine multiple debts into a single, manageable loan.
  • Equity Access: Free up cash from your home equity for renovations or other significant expenses.
  • Term Adjustments: Modify the length of your mortgage to fit your financial scenario better.

Current Interest Rates and Opportunities in 2024

In the wake of the rate shocks of 2022 and 2023, many homeowners are keenly observing interest rate trends. Most economists predict a softening of the cash rate towards the end of this year, although this adjustment might be postponed to early 2024 if inflation remains high. In light of these forecasts, Proptrack produced this simple graph that outlines the major fours outlook on when they expect the RBA to commence their rate-cutting cycle and by what degree – crystal balling of course!

Evaluating Your Current Home Loan

Before you leap into refinancing, assess your current mortgage. Consider these factors:

  • Interest Rate: How does your rate compare to the new rates available? Is there a significant benefit to you to refinance? Can you stay with your current lender if they improved their rate?
  • Fees: Are there early repayment penalties or high ongoing fees?
  • Loan Features: Does your loan include features like an offset account or redraw facility, and do you use them?
  • Repayment Flexibility: Are you able to make extra payments without penalties?
  • Internet banking: Given the lack of branches these days it is important to know what their digital solutions are like. Still, in 2024 there remain enormous differences between the banks and lenders in regard to their customer Internet banking solutions – you would be surprised to know.

The Refinancing Process Explained

Refinancing can be broken down into several straightforward steps:

  1. Goal Setting: Define what you hope to achieve with refinancing.
  2. Financial Review: Assess your financial health and creditworthiness with an experienced mortgage broker.
  3. Loan Shopping: get assistance to compare suitable loan products that meet your needs and not the banks.
  4. Application: Submit your application and required documentation with expert assistance from your helpful mortgage broker at every step.
  5. Settlement: Once approved, the new loan will pay off your existing mortgage.
  6. Post-settlement: This is an important one. A great mortgage broker, like the ones at Axton Finance, will keep in touch with you and automate the review process to ensure you are never ripped off by your new lender. It’s in our interests to ensure you remain on a great rate, not your banks.

Conducting Market Research

Understanding the broader market context is crucial. Research recent trends in home loan rates, consider economic forecasts and review mortgage brokers and lender reputations and reviews (at the time of publishing we have almost 300+ five-star Google reviews). This information will guide you in choosing the right loan product and lender.

How We Can Help

At Axton Finance we specialize in helping homeowners like you navigate the complex world of mortgage refinancing. Our team of experts will guide you through evaluating your current loan, choosing the best new loan, and handling all the paperwork. Let us help you secure the best deal possible and achieve your financial goals. Contact us today to get started!

How is Your Home Loan Interest Rate Calculated?

Buying a home or just refinancing one usually means a hefty financial commitment – and understanding interest rates is key to making sound choices.

We often get asked how the interest rate on your mortgage is calculated.

Let’s dive in!

Factors Influencing the Interest Rate of Your Mortgage

Your interest rate isn’t a random number. It’s determined by several factors:

  • Credit Score: A high credit score indicates you’re a reliable borrower, potentially earning you a lower interest rate. If you want to get a free credit score report reach out to us.
  • Loan-to-Value Ratio (LVR): LVR reflects how much you’re borrowing relative to the property’s value. Higher LVRs may mean higher interest rates especially as you pass 80% LVR and it really ramps up over 90%.
  • Loan Type: Different loan types (variable, fixed, line of credit, interest only, intro rates etc.) come with varying interest rates. The cheapest form of lending is usually principal and interest for owner-occupied purposes. The more expensive rates are interest-only investment purpose lending. If your loan is an SMSF (Self Managed Superannuation Fund) loan then the rates are higher again because they are limited recourse structures.
  • Economic Climate: Interest rates are a function of controlling inflation first and foremost. The effects of rapid rates of inflation have a very corrosive effect on people’s purchasing power and the overall stability of the greater economy. To curb inflation, central banks, like the RBA (Reserve Bank of Australia) raise the cash rate, the rate at which banks borrow money from each other. When the cash rate goes up, lenders typically raise their interest rates, and vice versa. This discourages borrowing and spending, which can help slow down inflation. Conversely, if the economy weakens and inflation falls, the cash rate may be lowered to stimulate borrowing and spending.
  • Funding Costs: Banks lend you money from various sources which include but are not limited to deposits held, bonds and other security instruments. Depending on a number of macro-level variables source funding costs can be more expensive at times which sees the cost passed onto you, the borrower.

Types of Interest Rates

  • Variable Rates: Fluctuate with the market, and will rise and fall during your loan term. Banks and lenders can also move rates outside of RBA if conditions determine so.
  • Fixed Rates: Stay the same for a set time, typically 1-5 years, offering predictable repayments.
  • Split Rates: A combination of variable and fixed rate portions within the same loan.
  • Introductory rates: Also called honeymoon rates are, as the name suggests, a cheaper starter rate that ramps up after a period of time usually six to twelve months. In the long run honeymoon rates are generally a more expensive product solution and are rarely recommended by us.

What’s the Outlook in 2024 for Interest Rates

Interest rates are constantly changing. The best way to get an accurate picture is by comparing lenders or appointing a broker who proactively does this for you during the life of your loan (like we do at AXTON Finance!). Look at their advertised rates primarily, but be cautious in relying just on the so-called comparison rate which is usually an inaccurate assessment for larger loan sizes of $750k. It’s worth considering that comparison rates only compare a standard $150,000 loan over a set 25-year term including all fees and charges. An experienced mortgage broker can help demonstrate the effects of what a new loan term may really cost you, especially when you factor into account the long-term effects of consolidating debts, like a car loan or credit card into your home loan. The costs can be nasty if you are blinded by the ‘lower’ monthly repayment on offer.

Tips to Save Interest on Your Home or Investment Loan

Larger Down Payment: Lowering your LVR means potentially lower interest rates.

Shorter Loan Term: Reduces the total interest paid, though repayments will be higher.

Consider an Offset Account: Offsets your savings balance against your loan balance, decreasing the amount you pay interest on each repayment cycle. When used right this structure combined with the above concepts can have an enormous compounding effect on the cost of your loan.

Refinance Regularly: Don’t stick with the same lender forever because ‘it’s OK’ or ‘you are too busy’. Shopping around and refinancing when better rates arise could save significant interest if you are comparing apples with apples and getting good advice from an experienced mortgage broker.

Fortnightly Payments: Paying fortnightly instead of monthly means you make an extra month’s worth of repayments over a year, reducing interest faster. This can easily cut five years off a normal 30-year loan term.

Harness Credit Card Power: If disciplined, put all your expenses on a card with a long interest-free period (say 55 days) and pay it off IN FULL each cycle. In the meantime, your salary in your offset account reduces the loan’s interest-accruing balance.

Negotiate: Don’t be afraid to ask your lender for a better rate, particularly if you’ve got a good repayment history. Better still your broker should be regularly doing this for you as part of their ongoing service – if they aren’t you better speak to us.

How Axton Finance Can Help?

Navigating interest rates and loans can be overwhelming especially when there seems to be near limitless choice. That’s where we step in! As experienced mortgage brokers, we’re here to guide busy professionals like you through the complexities. We’ll compare lenders, help you secure pre-approvals tailored to your circumstances, and ensure you find the most competitive rates for your home or investment loan.

Let us help you make informed financial decisions – get in touch today!

×
×

Get in touch with the expert brokers at AXTON

We will contact you within 10 minutes or sooner during business hours for a quick high level discussion.

"*" indicates required fields

This field is hidden when viewing the form
This field is hidden when viewing the form
DD slash MM slash YYYY
This field is for validation purposes and should be left unchanged.

"*" indicates required fields

This field is hidden when viewing the form
This field is hidden when viewing the form
DD slash MM slash YYYY
This field is for validation purposes and should be left unchanged.