When Should I Refinance My Home Loan?

Couple looking to refinance

Refinancing is one of those crucial things you should know about when you have a mortgage. In simple terms, refinancing is replacing your current home loan with a new one. In addition to what refinancing is, when to do it is another question that plagues most homeowners. Unfortunately, the solution to this question isn't as straightforward as it may appear at first glance. A lower interest rate is the most common incentive for switching lenders, but there are numerous additional perks as well as downsides to consider before making the important decision.

When do Most Homeowners Decide to Refinance?

Typically, people consider refinancing their home loan near the end of their fixed rate term. However, most people consider refinancing every 3 to 4 years even if they have a variable rate mortgage. Hopefully, that timeframe is enough for you to decrease your loan balance and have your property value increased if the market goes up.

That is an excellent position to be in as it allows you to shop for a better rate or a more flexible package with other lenders. This also comes in handy if your current lender is unwilling to release equity to you for buying an investment property.

If you want to learn more about getting the most out of your mortgage and when to change your lender, we are here to help.

Am I Eligible to Refinance my Mortgage?

  • Your loan-to-value ratio (LVR) must be lower than 80% to avoid paying thousands of dollars in Lenders Mortgage Insurance (LMI).
  • If you have a variable rate mortgage, you can refinance every 6 months. However, you must be aware that an inquiry will be added to your credit file every time you apply for a new loan.
  • If you previously had a low doc mortgage, but now you want to refinance to a standard home loan at a sharper interest rate, then you can do so by showing sufficient income evidence.
  • Your loan to value ratio (LVR) must be 80% or less and have no black marks on your credit report if you want to refinance a bad credit loan back to a significant lender.

When Should You Consider Refinancing?

The right time to refinance hinges on your personal and financial situation, although a good place to start is searching for the best offers. You can always use online calculators to compare rates and fees from different lenders so you know exactly how much money switching might save you.

As well as allowing you to lower your monthly payments, home loan refinance may allow you to access the equity you’ve built in your home or to readjust your mortgage to better suit your needs.

No matter what your refinancing objectives are, you could capitalize on this time of the current competitive market looking for new customers. The prospects of getting a better deal by refinancing are higher, especially if you’ve had your mortgage for a few years.

How Often Should I Refinance my Home Loan?

As we said earlier, the decision to refinance relies on your financial situation and your goals in the long run.

It's typically best to refinance your family home just towards the end of your fixed-term loan if you don't plan to relocate anytime soon. It is possible to refinance a variable rate mortgage at any time, which is useful when refinancing an investment property and you want to access the equity you’ve built to grow your portfolio.

For example, you recently paid off your mortgage, but you found an investment opportunity and want to leverage your equity to buy the property. Your current lender may not accept this, but another lender may consider your case.

Considering refinancing your mortgage is only the beginning of the process. However, speaking to a professional may be more beneficial sooner rather than later. Book an appointment and talk to the home loan refinance experts at Capkon. We are happy to help!

Author:

Kiran Thapa

Seema Lama

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