Refinancing

Refinancing

Moving your existing mortgage or loan from one lender or bank to another is called refinancing. There are a number of reasons that you may consider replacing your existing mortgage with a new loan. Competition between banks means that there is often a variance of interest rates between banks, and even a small reduction in rates can make a big difference in the amount you pay over the term of the loan. So, if your bank has consistently higher interest rates than the competitors, that may be a trigger to start shopping for another bank. But be careful, there may be risks involved in moving banks that are not offset by the lower interest rates.

The benefits of refinancing

There can be several reasons for considering to refinance your mortgage:

  • Lower interest rates and therefore lower monthly payments.  Even a small drop in interest rates can add up to significant savings over the term of the mortgage. A saving of $100 per month will add up to $24,000 over a term of 20 years.
  • Reducing the length of your loan. Keeping the same repayments with a lower interest rate decreases the term of your mortgage and again, can add up to significant savings.
  • Changing the structure of the loan. You may not need to change banks for this, and you can consider changing the loan structure by negotiating with your existing bank. The reasons for restructuring may include fixing the interest rate for the mortgage or part of the mortgage or changing a portion of the mortgage from a fixed to a floating interest rate if you need to draw down on the mortgage for some reason.

The risks of refinancing

The aim of refinancing is either to get more flexibility at the same or lower cost or to reduce the overall costs of the mortgage. But be careful not to look only at costs. Remaining with your existing lender can have benefits. It’s a good idea to compare and to consider the complete offering rather than just interest rates.

Make sure that you check the costs over the entire term of the mortgage rather than just the monthly repayments.

Check the establishment costs, legal fees and termination fees of the current loan.

Our advice is always to work with a reputable mortgage broker. That won’t cost you anything and you will be better informed on your option and you’ll have access to the services of the many lenders that are available to you, rather than considering only the ones that are advertising the best interest rates.