MAINTAINING A HOME
What's the difference: Refinancing or applying for a new mortgage?
There are many reasons you might need to get more out of your home loan. Perhaps you’re looking to renovate your home, purchase a business or consolidate your debt. You might be coming out of a fixed-term period and looking for a better deal. You may even be dissatisfied with your current bank. Whatever the reason, refinancing your home loan or applying for a new mortgage may be worth considering if you need a little extra financial support.
But, what exactly is the difference between refinancing or applying for a new mortgage? And which is the best option for you?
Refinance your mortgage or take out a new one?
The major difference between refinancing and taking out a new mortgage is the process. Refinancing a home loan usually involves shifting your current mortgage to another lender. On the other hand, applying for a new mortgage is something you might do with your existing lender.
Before you make any decisions, it can be useful to know what to expect logistically. For instance, the process of taking out a new mortgage with your lender could be faster, given they already have all the information they need from you. Whereas, switching lenders to refinance your loan could take longer.
What are the benefits of refinancing your home?
A better interest rate
Lenders may use changing interest rates to attract new customers, so it could be useful to shop around to seek out the best available rate (or even ask your current lender if they can give you a better deal). Be sure to compare the comparison rate rather than the headline interest rate. The headline interest rate only tells you the interest rate itself, where a comparison rate includes all the other costs and fees involved.
Fixed interest rates
Refinancing may enable you to fix your interest rate for a set period, protecting your loan against any potential rate increases. You might find that this is useful if you anticipate any large expenses in the short-term that could make higher repayments tricky. Keep in mind that most fixed loans only allow limited additional repayments – it’s best to check directly with your lender.
You may be able to pay off your loan sooner
If you find that your circumstances have changed throughout the course of your existing home loan, refinancing it may enable you to pay it off quicker if you reduce its term. If, for example, your income is greater than when you initially took out the loan, you may have the ability to make larger repayments. And by negotiating a shorter term on your loan, you’ll cut the amount of interest you pay over its lifetime.
If your home loan has been with the same lender for years, it could be time to refinance to get it to work harder for you. Suncorp Bank offers many features across a range of loans.
What are the benefits of a new mortgage?
You’re already on the books
A significant benefit of applying for a new mortgage through your existing lender is that they already know what they need to know about you. If you apply to refinance a loan with a new lender, you’ll have to go through the same process as when you applied for your existing loan. This includes providing them with proof of income, assets and the details of your living expenses.
Choosing to stay with your current lender could also lead to a reduction in the costs associated with refinancing, such as exit fees.
You can ask for a better deal
If you do some research and approach your current lender with the rates of their competitors, you may find they’ll reduce their rate to retain you as a customer.
Seek advice from a home loan specialist
Like any important money-related decision, choosing to refinance your home loan or get a new mortgage each presents their own advantages and disadvantages. The option that’s right for you will depend on your current financial situation and personal circumstances. Before reaching any conclusions, you may find it useful to talk to a home loan specialist.
Information is intended to be of a general nature only and any advice has been prepared without taking into account any person's particular objectives, financial situation or needs. You should make your own enquiries, consider whether advice is appropriate for you and read the relevant Product Disclosure Statement or Product Information Document before making any decisions about whether to acquire a product.
Banking products are issued by Suncorp-Metway Ltd ABN 66 010 831 722 AFSL No 229882 Australian Credit Licence 229882 (“Suncorp Bank”) to approved applicants only. Please read the relevant Product Information Document, Lending Fees and Charges and the Home Package Plus Terms and Conditions before making a decision regarding any Suncorp Bank products. Fees, charges, terms and conditions apply and are available on request or on our Product Information Documents and Forms page.