When it comes to home loans, borrowers have various options for adjusting their loan terms and interest rates. Two common options are repricing and refinancing. We will discuss each option’s meaning, the benefits and drawbacks, and other important considerations to help you make an informed decision.
What Is Refinancing?
Refinancing is the process where you pay off your existing loan by taking out a new one with different terms and conditions, from a different lender. Homeowners refinance to obtain better loan features, secure a lower interest rate, access equity in their home or consolidate debt.
What Are The Benefits Of Refinancing?
The benefits of refinancing your home loan are:
- You can enjoy lower interest rates: More competitive rates can be offered to you, as there is a wider pool of lenders to look at compared with when you are repricing.
- You can make lower monthly payments: With lower interest rates, your monthly payments will be lower, leading to much more savings over time and lowering your cost of living.
- You can opt for a fixed rate for more certainty.
- You can get access to cash: You can tap into your home’s equity to obtain the cash to pay off other debts, make home improvements or invest in other opportunities.
- You can get cashback: Lenders are offering up to $6,000 cashback to refinance with them. This can be used to pay for refinancing costs or other expenses.
- You can reduce your loan pay-off period: If you aim to repay your loan quicker, you’ll reduce the duration of the loan term and the associated interest payments, resulting in a lower total amount of interest paid.
- You can switch to a different loan type: Refinancing allows you to change to a different loan type than what you have, like a more stable fixed-rate loan, a flexible variable home loan or a split loan.
We discuss more benefits of refinancing your home loan here.
What Are The Drawbacks Of Refinancing?
The drawbacks of refinancing your home loan are:
- Refinancing takes time: The refinancing process involves discussing your scenario with your broker and shopping around for lenders. It continues through to settlement. It takes more time than repricing. A standard home loan refinancing process can take up to a month, but it can be shorter or longer depending on the lender’s turnaround times and the complexity of your application.
- Closing costs: Refinancing can involve closing costs ranging from 2% to 5% of the loan amount, depending on the lender.
- Lenders Mortgage Insurance (LMI): You must pay LMI if your equity is less than 20%.
- Savings may be minimal: The new interest rate you get from refinancing may not be worth the cost, time and effort. Be sure to compare the cost of refinancing and the amount you would save with the new loan before proceeding.
- Potential impact on your credit score: Applying for refinancing will leave a credit enquiry on your credit report. Making multiple credit enquiries while shopping for a loan can result in a temporary drop in your credit score, affecting your ability to qualify for other loans and credit in the short term.
Golden tip: HLE brokers are highly skilled at determining which lenders are most likely to approve you for their products. They can assess your chances before you submit your application, potentially saving you from damaging enquiries on your credit report and giving you the best chance at approval.
What Is Repricing?
Repricing is when a borrower negotiates a new interest rate with their current lender without changing the loan itself. Repricing aims to save money in interest payments over the life of the loan. This will help reduce monthly payments and improve cashflow, which can be particularly helpful during financial hardships.
What Are The Benefits Of Repricing Your Home Loan?
The benefits of repricing your home loan are:
- It is cost-effective: Repricing is generally less expensive than refinancing, since it only involves changing the interest rate and does not require any legal and admin fees associated with refinancing.
- It is a fast process: It typically takes less time to complete than refinancing, since it’s an internal process.
- It is convenient: Repricing allows you to stay with your current lender and avoid the hassle of shopping around for a new one and making application submissions.
What Are The Drawbacks Of Repricing Your Home Loan?
The drawbacks of repricing your home loan are:
- There are limited options: You are limited to what your loan package offers, which may not be as lucrative as other banks offer.
- You will have limited savings: Repricing usually offers a small reduction in your interest rate, which means borrowers may not see significant savings in their monthly payments, compared with refinancing.
- The terms you can change are limited: Repricing does not allow borrowers to change other aspects of the loan, such as the term or the frequency of repayments.
- You will have limited negotiation power: Because your lender is aware of your current interest rate, you may not be able to negotiate as much as with a new lender who doesn’t know. You can have the upper hand with a new lender.
- You may not be eligible for repricing: The current lender may not be willing to reprice your rates if you have been behind on your repayments.
Repricing Vs Refinancing – Which Is Better?
Repricing is a good option for borrowers who are happy with their lenders and want to lower their interest rates quickly and easily, without all the hassle of refinancing. However, note that staying with your lender means you may be paying the loyalty tax. Visit our page on negotiating your interest rate for a step-by-step guide on negotiating with your lender.
Refinancing opens doors to more competitive rates in the market. Suppose your lender is not willing to give you a lower rate that they are offering to new customers. In that case, you can always explore elsewhere and look for loan packages that can provide you with more savings in the long run. But keep in mind the costs involved..
We Are Here To Help!
At Home Loan Experts, our mortgage brokers can help you with either refinancing or repricing your home loan.
- We can negotiate a better deal with your current lender and reprice your home loan at a lower rate.
- We can also help you find better deals from different lenders should you need to refinance your home loan.
- We will run the calculations for you so you can determine whether refinancing or repricing is the better option for your situation.
We have customers boasting that our brokers do all the work for them, and quickly, as they sit back and relax. Call us on 1300 889 743 or fill in our free online assessment form, and we will assign our best broker to assist you.