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Voiceover: This podcast is for education and entertainment purposes. It's not financial advice and doesn't take into account your objectives, financial situation or needs. You should consider if the information in this podcast is appropriate for you and contact a professional financial adviser. If you are seeking financial advice.
Alan: Hello and welcome back to the Health Professionals Bank Bringing It Home podcast series, where we take you through the home buying process step by step from getting home loan ready to the home loan application process right through to sale and settlement.
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Alan: I'm Alan Waugh from Health Professionals Bank. And joining me again today is Financial wellness and certified money coach Betsy Westcott. Betsy has helped hundreds of people to realise their dream of becoming home owners and investors. And the greatest wish is that every Australian enjoys financial well-being. Hello again, Betsy. It's great to see you as always.
Betsy: Hi, Alan. It's great to be here, as always.
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Alan: Look, now, today we're going to be talking about refinancing. What is it? How it works and the reasons why we might consider refinancing from getting a better interest rate through to switching your loan to a lender who cares more about the same things you do. But before we get started, we'd like to acknowledge the traditional custodians of country through Australia and their connections to land, sea and community.
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Alan: We pay our respects to their elders past and present, and extend that respect to all Aboriginal and Torres Strait Islander peoples. Now, Betsy, refinancing is a super important topic for homeowners, but it's important for first time buyers to be aware of too, because when we're making such a big investment, we always want to have an eye on the future.
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Betsy: Absolutely. And you don't have to stay married to your home lender for ever, as we know, interest rates and circumstances can change over time. So the homeland we take out now, it might not be the right home loan for us in a couple of years time. Alright, so let's go back to the basics here. Can you give our listeners a bit of a one on one and what we mean when we talk about refinancing?
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Betsy: In a nutshell, refinancing means moving your current home loan from one type of loan to another loan with a different interest rate or different terms or features. You can also choose to refinance to another loan with your current lender or you can completely switch lenders and go to a different lender altogether. It can give you more flexibility with your money and let you adapt your loan to suit your changing life circumstances.
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Betsy: It's a relatively straightforward process, very similar to applying for a new home loan. Look, you mentioned interest rates just earlier, Betsy, and let's face it, getting a better rate to potentially bring those loan repayments down is one of the big wars when it comes to refinancing. Absolutely. And it will be particularly top of mind for listeners who may be facing a mortgage cliff as they come off a fixed rate loan term.
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Alan: Okay, Cliff, okay, let me stop you there. Mortgage Cliff. Now, it's a term that some of our listeners probably have heard already, but can you talk us through what exactly that means? Sounds scary.
Betsy: It sounds scary, isn't it? But basically it's just the prospect of a sudden and steep increase in your loan repayments. So if you're locked in a really low fixed rate when you took out your home loan.
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Betsy: But since then interest rates have gone up, you could be facing much higher repayments when your fixed term expires and you move to that higher variable rate interest rate, or if you refix your home loan at the new higher available rate. So in some cases new home loan rates could potentially double or more your repayments.
Alan: That can be quite scary for for our listeners.
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Betsy: Yeah, it can be a big blow to the household budget if your repayment suddenly doubles or triples. So facing a big increase in your mortgage repayments can be really stressful. But the important thing to know is what your options are so you can make a plan. Some homeowners might struggle to make those higher repayments on their current loan, so refinancing could be one way of getting a better rate or accessing other loan features that could help you save on interest.
00:03:53:14 - 00:04:12:23
Alan: So that's an option our listeners should really look into.
Betsy: Yes, absolutely. A question for our listeners and new to Alan, would you drive your car without taking your car for a service?
Alan: No, no.
Betsy: So hopefully for everyone the answer is no and you can kind of think about your home loan in the same way, like getting your car service.
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Betsy: It's important to get a home loan health check. On a regular basis, my rule of thumb is about every 12 months or so to make sure it's still the best loan for your needs. And if you don't do this, you could be missing out on things like home loan savings, a loan that's a better fit for you and your life stage and goals.
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Betsy: And a reminder to our listeners that most lenders, including health professionals, bank, have home loan experts on hand who can kind of look under the bonnet of your home loan to make sure you're not missing out on the best value loan for you. So do make sure you take advantage of that. Maintaining your financial health is really important, just like it is looking after your emotional and physical wellbeing.
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Alan: So many good points there. Betsy. But getting a better right isn't always the only reason why we might think about refinancing. What are some other reasons?
Betsy: That's right. Alan So a couple of reasons you might want to refinance, include refinancing so that you've got a little bit more flexibility with your money. You might want to access funds to consolidate debt, study, travel, or even renovate to add an extra room for your home.
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Betsy: If your family's growing, for example, you might want to refinance so you can shorten your loan term and become debt free earlier. And then, of course, you might want to refinance to save on interest fees with a different loan or different features.
Alan: Right. Can we get under the bonnet with some of these? We've touched already on? One of the main reasons you might think about refinancing is to save money or reduce repayments with a potentially lower interest rate.
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Betsy: Absolutely. I mean, markets change, interest rates fluctuate. So better loan options might become available. You might want to save on interest with a more competitive right. You might want to reduce your repayments and lower the financial stress or fear funds for other savings and spending goals and the ratio of your loan to value of your home loan might have improved.
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Betsy: As a nurse, you might want to unlock your salary, sacrifice benefits on your home loan to you. How does it save money? That's always a big incentive. Absolutely. Especially if you're coming off a fixed rate loan and possibly facing that mortgage cliff that we mentioned earlier. And another reason to refinance is to own your home sooner and potentially save on the interest, reducing your loan term to own your home sooner your circumstances.
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Betsy: They might have changed. And you can now afford to reduce your loan term by increasing your home loan repayments, reducing the amount you owe on your home loan to save on interest. Your circumstances may have changed and you can now reduce the amount you owe on your loan to save on interest over the life of your loan. So, for example, you've received a promotion or pay rise or you've paid off your car loan or external credit card debt and are in a better place financially, or you might have come into a lump sum of money, for example, a tax return, or selling another investment, a gift, or even an inheritance.
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Alan: Okay, so we can save with a bit of home loan right through your loan time or the amount you owe.
Betsy: But what are some of the other reasons we might refinance while we might want to access different loan types and features that suit our needs? So life and circumstances change. Some we can control, some we can't, such as interest rate rises.
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Betsy: But we do need to respond to them all. The home loan that suited you yesterday might not be the best fit for your future, and refinancing allows you to switch to a different type of loan that might suit you better and help you save more. So you might want to switch from a variable rate loan to a fixed rate loan for the certainty of a locked in rate and the same repayment amount for the duration of your fixed term.
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Betsy: Or perhaps you want the flexibility and features that might come with a variable rate loan, including loan portability, flexible interest options and mortgage offset or redraw facilities or other package home loan benefits. So, for example, let's talk about offset and radial facilities like the ones that come with the health professionals Bank your way plus home loans. These could help you reduce the amount of you pay in interest of the life of the loan.
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Betsy: For example, if you're a health care professional doing regular overtime or working shifts, you'll pay might vary from week to week. So a redraw facility might suit you. It lets you make extra loan repayments at any time so you can save on interest or pay your loan off sooner. But with the flexibility of being able to redraw those funds if you need them in the future.
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Alan: That's right. And with your way plus package home loan, you get to choose between a fixed variable and a split right? And health professionals get an additional discount on the variable rate for the life of the loan. There's no establishment fee, and the annual package fee is substantially lower than a lot of other the banks too. So we're really proud to be able to offer that kind of value for our members.
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Alan: The other plus, with the fixed rate loans on offer through our your Way plus package is you get additional flexibility and a lot of other banks don't offer like that offset facility you mentioned earlier, Betsy.
Betsy: Yes. And we covered offset facilities and redraw facilities in more detail in our last podcast. So listeners, if you haven't already, make sure you go back and have a listen to that episode.
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Alan: Now back to another common reason for refinancing. And some of our listeners may be familiar with this one, and that's refinancing to unlock equity in your home to fund other goals. Can you tell our listeners a little bit about what that is?
Betsy: Yeah, basically equity is the difference between the value of your home and the balance of your home loan over time as you start making payments towards reducing the amount owing on your home loan and as the value of your home potentially increases, as the equity in your home or the amount you actually own increases to owners can then tap into that equity to finance other goals.
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Alan: Okay, so let's say I bought a house two years ago for 850,000, but it's now worth 930,000 and my home is behind mine sitting at about 500,000. That means I've got 430,000 in equity. Is that right on, Allan? And what would I want to refinance to unlock that and use that equity?
Betsy: Yeah, good question. Homeowner is might want to tap into any equity they have in their home to fund other things, things like renovation, travel or even to consolidate debt to save on interest.
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Betsy: Now I'm going to just put a little brief caveat out there that lenders typically won't let you access 100% of your equity, and the credit criteria still applies when you refinance, much like taking out a new home loan. So common reasons for using equity in a home loan is to access a deposit for, say, a second home, or perhaps an investment property sooner, rather than saving up another deposit amount.
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Betsy: You could also use the equity in your home to consolidate debt, consolidating multiple high interest debt into one manageable loan repayment at a lower rate and the higher the equity in your home, the better lower the loan to value ratio or LVR is and generally the lower the l your LV are, the lower your interest rate. So refinancing to access equity in your home may also help unlock a better interest rate for you.
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Betsy: Now reminder that equity in your home isn't like free finance. For example, if you access 50,000 equity to fund a renovation, that amount would be added back to your loan balance, which means your home loan repayments would also increase. So if you're thinking about accessing home equity, I really recommend speaking to a lending specialist to find out more about the ins and outs of equity and whether this could be a good option for you.
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Alan: That's a that's a great rundown there. Busy and certainly talking to one of our lending specialist will help navigate that. Now another reason that we know people choose to refinance is to switch to another lender. Who cares more about the same things that they do?
Betsy: Yeah, a topic close to my heart, Alan. We are seeing that more and more.
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Betsy: And in fact, and this is a quick question for listeners, how many Australians would consider moving to another financial provider if they can't provide it isn't aligned to their values. It's a huge 75%, according to the Research from Responsible Investment Association of Australasia. And Alan, I know it's a big reason of why a lot of your members choose Health Professional Bank too.
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Alan: It certainly is. And it look, it's something we're really proud of as a certified B Corp and a member owned bank. We operate for people, planet and profit, and it's a commitment to our members and borrowers that we take very, very seriously. And some of our listeners might not be aware that Health Professionals Bank actually puts money back into the health sector too, as a mutual bank, we don't pay dividends to shareholders like the bigger banks.
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Alan: The profits we make are invested back into the products and services we deliver to our members. We also invest into the industries we serve, the health professionals community. That's right. We sponsor a range of different initiatives and events that make a difference to health professionals. So that's just one of the ways we give back to the community.
Betsy: And you can find out more about our ethical and sustainability credentials on the website too, can't they?
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Alan: They certainly can, Betsy. Just click the sustainability link in the menu on our website to find out more. Now that brings us to our last topic. Before we wrap, we wrap up today's episode. What do our listeners need to know about the process of refinancing and what are the costs that might be involved in that?
Betsy: Yeah, so a very brief overview of the process and what happens is basically the process of refinancing is very similar to when you took out your first home loan.
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Betsy: You submit a home loan application, but you're borrowing to pay off your loan rather than to buy a property itself. As with the home loan, this costs, including the discharge fee on your current home loan. And there may be a break cost involved to a break cost rule apply if you're breaking your current fixed loan term early, so make sure you check with your lender for an estimate on how much that could be, because it can can be significant cost for applying for your new loan might include the registration fees, application and valuation fees.
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Betsy: On the other side, unlike a home loan to buy a property, there's no stamp duty and you won't have the same legal fees to pay to your lender will typically take care of organising valuations and paying out your existing home loan. That's right. And just a reminder for our listeners to do your sums, if you're thinking about refinancing, just make sure your new loan leaves you in a better overall position.
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Alan: Look, now we're almost out of time, Betsy, but before we wrap up, your top tips for listeners when it comes to refinancing,
Betsy: Okay, six tips, I would say to one, do your home loan homework to research and compare home loan options. Three Use a home loan calculator to compare home loans and rate for understand the fees and charges involved.
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Betsy: Five know what to avoid or watch out for or for example, those honeymoon offers. And number six, speak with your lender to discuss your needs and options.
Alan: Fantastic, Great tips, as always. And thanks again, Betsy, for joining us today.
Betsy: Thanks for having me, Alan.
Alan: And thank you listeners for joining us today. We hope you enjoyed today's Bring It Home episode on refinancing.
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Alan: Don't miss our next episode when we get into the exciting part, finding the right property for you. And remember, if you have any questions about the home buying process or just want to speak to one of our lending specialists, please give us a call or make a booking on our website to speak with a lending specialist at a time and place that suits you, including after hours at your place of work at one of our video.
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Alan: And as always, see you next time.
END OF EPISODE
