Refinancing your current home loan can be a great way to save yourself thousands over the lifetime of your loan while also allowing you to adjust the terms to better suit your situation. With benefits like this you may be tempted to refinance your loan the second you get the chance – but when is that?
When can I refinance?
The short answer to this question is whenever you would like, provided the loan has been settled. The slightly longer answer is whenever you would like, but you should wait until it is beneficial.
There are no defined rules about when you can or can’t refinance. Every time you refinance into or out of a home loan, costs are accrued. Even though there are no rules saying you can’t refinance whenever you want or when you need to, there are a few reasons you shouldn’t refinance too soon.
Typically, the average Australian refinances every 3-5 years. Especially for those who have obtained a fixed rate home loan. Outside of this, refinancing too soon can leave you with many costs and fees which can outweigh the benefits.
Refinancing should only happen after considering the following:
- The benefits outweigh the costs
- Your circumstances have changed and require a different structure
- Refinancing is unavoidable – e.g in case of emergency, relationship break-down, or death.
- Other opportunities factors cause a cost of inaction.
We typically recommend speaking to a mortgage specialist and conducting a thorough cost vs benefit analysis before considering refinancing or even purchasing a property. You should always have a preapproval in your hand before taking steps which may be irreversible and highly costly.
The cost of refinancing
The majority of people will refinance with the goal of saving themselves money in the long run, but by refinancing too soon or too often, you can easily end up not saving anything, or even worse, losing money.
Because refinancing is essentially taking out a new loan to pay off your current loan, many of the fees you may have paid for your original application will be charged again. These fees include application fees, legal fees, mortgage registration fees, and more. On top of this, if you decide to refinance with a different lender, your current lender can also make you pay an early exit fee, discharge fee, or fixed-rate break costs.
Any of these fees can be very costly, especially during the first year or two of your loan, so coupled with costs to apply for refinancing, the costs of refinancing too soon can easily outweigh the benefits – even if you do get a very competitive rate.
Rates are also unlikely to change significantly during the immediate time after your loan settles, so provided you saw the Glass Financial team and got the best deal, refinancing immediately will often only slightly improve your rates at a considerable cost. Our team are experts at researching and building the right strategy for your unique circumstances.
Will refinancing hurt my credit?
As you may know, both closing off an existing credit facility (your old loan) and opening a new one (refinancing) can have an impact on your credit.
Each time you apply for credit, the lender will conduct an in-depth enquiry into your credit file. While a couple enquiries within a reasonable period is fine, more than just a few can amplify the effect, requiring much more time to recover, potentially ruining your chances of refinancing or purchasing an investment property.
There are limitations lenders can allow when it comes to the number of enquiries within a 5 year period. Many clients we see are surprised how quickly a home loan enquiry, or two or three, a credit card enquiry here and there, add up. Let’s not forget, other utilities can also make enquiries on your credit file.
If you are not in a position to refinance, there are still some options for you to achieve your goal by potentially adjusting some arrangements with your current mortgage and avoiding unnecessary headaches and costs or even taking out a separate loan to get the right funding you need.
The professional and respected team at Glass Financial will make sure that you know exactly what your options are whether you’re ready to refinance or not, to ensure no matter what you do, you get the best deal available.
Above all else, our focus will always be on our customers’ satisfaction.
Call us today on 1300 245 277 or send us an email to [email protected]
