With interest rates skyrocketing, many mortgage holders may be considering their options of refinancing to take advantage of the cash incentives many banks offer to attract new customers.
While it may be appealing to take advantage of these cash incentives, it’s essential to understand the refinance process, to weigh up the pros and cons and to determine whether it’s the right move for you.
The last thing you want to do, is to get caught in a situation where the cost of refinancing far outweighs the benefits.
Key considerations & costs associated with refinancing
Before you consider refinancing, it’s essential that you evaluate your current mortgage and the costs associated with refinancing.
Some points to consider:
- Repayment of your original cash incentive – are you still within your clawback period for the cash incentive you received for your current mortgage? (ie. do you need to repay your cash incentive amount if you refinanced). Generally, these clawback periods range from 3 to 4 years.
- Break Fees – if you’re looking to refinance before your current fixed term mortgage expires, it’s essential to consider if there are potential break costs. Breaking a fixed term mortgage early can result in break fees.
Legal Fees – you’ll need to work with a Solicitor to complete your refinance. This cost can be anywhere upwards from $1,100 + GST (NB: There are some banks that offer a Free Refinance Service so you may be able to avoid these legal fees).
- Interest rates – check if the interest rates being offered by your current mortgage provider are competitive in comparison to what others are offering.
- Repayment flexibility – does your current mortgage provider allow for extra repayments, lump sum payments or other flexible options that suit your financial goals?
When to refinance
Timing is crucial when it comes to refinancing your mortgage –
- Expiry of current fixed term – if your current fixed term is expiring, you may be able to obtain a better interest rate with another bank with NIL break fees
- Expiry of cash incentive clawback period – if you’re outside of your clawback period for your original cash incentive, you’ll be able to refinance WITHOUT having to repay this amount back.
- Credit score improvement – at the time of taking out your original mortgage, it may have been with a non-bank lender due to an impaired credit score. Your credit score may have improved over time and so you may qualify for a mortgage from a main bank.
- Changes in financial circumstances – changes in your financial situation (ie. salary increase, expanding family etc) may warrant refinancing so that you can structure your mortgage to better suit your needs.
Want to find out more?
The team at Wayne Henry Mortgages are available to chat anytime about the possibility of refinancing your existing mortgage.