If you’re an owner-occupier struggling financially right now due to Covid-19, you are not alone. Luckily, by refinancing your home loan you can lighten the load on yourself and your family. This isn’t limited to those who are struggling either as now might be the right time to refinance even if you are currently financially stable.
Before we get into refinancing it should be noted that a lot of banks and lenders right now are offering support for eligible customers who have suffered hardship as a result of Covid-19. So before you go and refinance your home loan, consider checking to see if you are eligible. Measures you could be eligible for include:
- Repayment deferrals of up to six months
- Fee waivers
- Offset account withdrawals at no cost
Benefits of Refinancing Now
- You could get access to savings promoting features
Right now, your home loan might not have access to a saving feature like an offset account or being able to switch to a fixed rate home loan. Offset accounts could help you save a tonne on interest and fixed rates might be able to save you money in the long-term though that may be unlikely due to the RBA’s cash rate cuts.
- Lower repayments
Speaking of the RBA cash rate cuts, interest rates are at an all-time low. If your mortgage is over two years old, it might be a good idea to start looking at refinancing your home loan as it likely isn’t the most competitive rate anymore. By refinancing at a variable rate of 0.5%, you could significantly trim your monthly repayments.
- Debt consolidation
If you have a lot of non-mortgage debt and you’re either struggling to pay them or finding them hard to keep track of, you could refinance to consolidate all your payments. By bundling them all together like this, you could save money as you would only have to make one payment at one interest rate at one time. Home loan rates tend to be lower than things like credit card loans so refinancing could help you out of a jam.
- Access to Equity
Refinancing your home loan allows you to be able to use the equity in your home as security to gain access to any funds you may need. This means that you would be able gain access to money in order to renovate your home or purchase a car. You do need to have greater than 20% equity in your home in order to be able to do this.
This all sounds great, but refinancing isn’t the best thing to do in every situation. You may not want to refinance for a variety of reasons including:
- An anticipated decline in your income within the next few months
- Immediate hardship due to job loss or any substantial loss of income
If this is you, not to worry, there are things you can still do. When speaking to your lender, as mentioned above, you could change the terms or conditions of your loan. For instance, you could apply for a hardship variation. This is a letter you send to your lender that sets out your reasons for wanting to change the terms of your loan or temporarily pause/reduce your loan payments. In most cases, you’ll need to include in your letter:
- The details of your home loan
- Why you’re having trouble making repayments
- How long you might have trouble making repayments
- How much you can afford to pay on your home loan
If you are continuing to financially struggle as a result of Covid-19 please consider the NSW Government’s support advice for homeowners affected by coronavirus on their website.