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Refinancing

Refinancing

Refinancing is where a borrower (personal or business) wish to revise the terms of a loan so as to vary payments associated with the loan. This often involves a new lender and new product.

Most loans refinanced now days are home loan where borrowers are unsatisfied with the interest rate and fees associated with their current loan.

IMPORTANT: Whilst there are definite advantages in refinancing as it can allow a decrease in interest rates and this alone can bring reasonable savings, any borrower needs to focus on what are the costs involved to refinance and if the savings far outweigh the costs involved.

Loans are refinanced for a multitude of reasons, though primarily to;

  • Lower interest rate and fees;
  • Get cash out for other purchase plans;
  • Extend the loan term; and
  • Improve cash flow

If you are not happy with your present loan arrangements, or believe you need to refinance for a financial benefit (savings or cash flow) please contact us to discuss your plans.

Reason for the refinance

If the reason for finance is to lower interest rates and save money, then the new lender will require some documentation to prove this. This is where we assist you determine if the action is beneficial.

We will look at your present loan, the statements, the rates and the term of loan and calculate the saving of any new loan.

Should the reason for refinancing is to gain access to extra cash, the lender will require valid acceptable excuses for the use of the released funds. Again this is where we will work with clients to determine if the cash out reasons are acceptable to the lender.

Budget - Can You Afford the Repayments

When considering any refinance, as with any new loan, it is absolutely essential to determine what repayments can be afforded so that the amount of maximum borrowing can be calculated.

Lenders will focus closely on a borrower’s income and expenses and then calculate themselves if the applicant can afford the loan. Experience shows us most home loan applications are declined when the lender decides the borrower cannot comfortably afford the repayments.

Please contact us to help you work out your maximum borrowing capacity before you start shopping for a home.

For assistance in setting a budget, please check out ASIC's site Budget Planner.

What to watch for

Unnecessary refinancing. There needs to be reasonable financial benefit (savings or cash flow) to the borrower for refinancing. Never refinance for no valid financial benefit.

Early repay penalties. Some loans come with penalties if the loan is repaid early, especially fixed term home loans. The financial penalty could be a financial barrier to any refinance and it may be that there is a need to wait until the early repayment penalty is less or nil before further action on refinancing takes place. Contact us to assist determine if the loan to refinance may have any early repayment penalties.  

Refinancing costs: There are usually costs associated in refinancing, though based on experience they tend to be less than borrowers believe. For example, to refinance a home loan the cost to discharge the existing lender mortgage could be around $300 and the establishment costs for a new lender may be as low as $250.  Every example will vary so contact us to determine any refinance costs for your proposal.

What’s Involved – Refinancing

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