Should I Refinance?
Is it a good idea to refinance? Funding Options managing partner Dom Cassisi highlights all the angles you need to consider before you make the decision to refinance.
What is Refinancing?
If your current loan structure isn’t working well with your circumstances, you have the option to refinance. This could simply mean choosing a different loan structure with more benefits to make it easier for you to pay off your loan.
While it sounds like a great idea in theory, you need to look out for a few pitfalls before jumping right in.
Forecast the pay-off
Most Australians are tempted to refinance because of the lower interest rate offered by another loan plan.
You need to carefully analyse the details. The interest rate might be lower, but there could be extensive fees that cancel out the potential savings.
Remember the two-year rule: if you can anticipate a payoff within two years of refinancing, then it may be worth it for you to give it a try. But if it doesn’t look like you’ll see any savings within a couple years, then it’s too risky.
You’ll also want to compare the benefits of two loan structures before switching from one to the other. Does your current plan have benefits that you are yet to take full advantage of? Make sure that your next loan structure incorporates the features that help you the most. A reduced interest rate isn’t worth sacrificing the aspects that keep your payments flexible.
When to refinance
Timing and circumstances can make refinancing more viable.
For example, refinancing can be helpful if you’re trying to pay off a large debt. Consolidating your debt and then choosing a structured method for paying it off requires discipline, but it could be a good option for you.
Remodeling your home is another occasion to consider refinancing. This can allow you to access the equity in your property. Additionally, switching to a construction loan will open up the borrowing benefits that just aren’t there with a traditional loan.
Changes in your situation generally will determine your need to refinance. Sometimes, however, the market trend could tell you it’s time for a switch. If you notice that the majority of loan interest rates advertised are at least 0.5% lower than yours, then you are probably paying too much.
Whether you’ve got a major project coming up or just need to make an adjustment in your budget, refinancing could be a big help.
How to begin refinancing your loan
Get started by talking to an experienced finance broker. Your finance broker will have a strong understanding of the market, and will be able to advise you about all of the deals on offer from the many financial institutions available.
This is important, particularly when negotiating with your current lender for a better deal. A finance broker, such as Funding Options, can negotiate on your behalf, drawing on their market knowledge to not only get you a better deal but also other incentives, which may include rebates and waiving of fees.
Negotiating with your lender by yourself could be risky. Your bank will not provide you with an independent comparison. And with hundreds of finance products on offer from competitors, doing the required research yourself and understanding all of the personal implications would be an extraordinary task!
After negotiating with your lender, your finance broker will be able to recommend whether you stay or go. It could be a better option for you in the long run to just stick with your present loan structure. You could enjoy greater flexibility and wind up saving more than if you did refinance. But it is crucial to make an informed decision.
What should you do?
Get an expert opinion. Contact our team at Funding Options for a no obligation chat. We’ll weigh up your circumstances and determine whether refinancing is a smart move.
–Dom Cassisi, Managing Director