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Key things to consider when you refinance


With interest rates at record lows, it may be a good time to think about refinancing your mortgage. There are several advantages to refinancing including the potential for lower repayments, special refinancing offers and additional loan features such as an offset account some of which you don't have with your current loan. While all these benefits are tempting, there are key things you need to consider when you're thinking of refinancing your home loan. 

Here we will outline what you need to consider.


Choosing when to refinance

There are times when refinancing can be particularly helpful. If you're thinking of renovating your property, in need of more streamlined money management or looking for debt consolidation, refinancing your home loan can help. Home renovations or big purchases, may allow you to access some of the equity in your home to make improvements. Just make sure you understand how accessing this equity is going to impact your new loan before you continue.


Beware of costs 

Depending on your lender, refinancing can involve costs such as application fees for the new loan or discharge fees on your current loan. Be careful if you currently have a fixed rate home loan, you may need to pay a break cost to refinance. If you refinance regularly to take advantage of lower rates, these fees can add up, sp while these rates may be attractive, the fees to keep changing could render any of your savings redundant, so do your homework. 


Lenders mortgage insurance (LMI)

if you borrow more than 80 per cent of your property's market value when you refinance, you’ll need to pay lenders mortgage insurance (LMI). AND even if you previously paid LMI on your current loan, you'll still need to pay it on the new loan if your loan to value ratio is equal to or greater than 80 per cent. 


Check your credit rating

If your credit rating isn't strong and has a few issues, it may not be worth refinancing your home loan. The application to refinance will impact your credit score, so you'll reduce your bargaining power for future loans if you get refused for a loan now so it may be more suitable to stick with your current loan. 

Refinancing is just as big of a decision as securing the initial home loan itself so make sure you complete your due diligence and make an informed decision. In fact, you're replacing your current home loan with a new one, it's best to speak with a broker and your chosen advisory professionals to make sure refinancing is a fit for your financial situation. 

Remember, this article does not constitute financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.