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Refinancing happens when you decide to transfer your home loan or investment loan from one lender to another. However, refinancing is not always about switching financial institutions. You can also refinance to consolidate other debts into your loan with your existing lender.

There are common triggers which may cause someone to consider refinancing. These include getting a more competitive interest rate, accessing equity, renovating or extending your house, where the fixed rate or interest-only period on an existing loan comes to an end, or wanting to consolidate debt which includes credit cards, personal loans and car loans into a home loan.

What you need to know when you refinance:

  • How much equity do you have? Some lenders will not refinance a new loan unless you have a certain level of equity in your property.
  • There are costs involved - Depending on your existing loan type and lender you may have to pay some costs to get out of your existing loan. Products such as fixed interest rate loans can incur higher fees to exit them. There can also be establishment fees for your new loan, so make sure you are aware of all the costs involved before switching.
  • Cost Analysis - Does the cost of exiting your existing loan and establishing your new loan offset the savings of your new loan?
  • Negotiation is important - If your Loan-to-Value (LVR) is below a certain level, lenders may be more willing to compete for your business, but there are also other factors that can help you achieve further discounts.
  • It's not always about lowering your repayments, however – Often, you can lower your loan repayments by refinancing, but it can be a good strategy to keep paying your home loan off at the same amount you're accustomed to after refinancing. The result is you could pay off your home sooner by keeping the repayments the same.