Is there a best time to refinance? The experts share their thoughts

The number of borrowers switching lenders hit an all-time high in August last year, with the Australian Bureau of Statistics reporting home loans valued at $18.88 billion were refinanced, up 5.3 per cent on July.

While rising interest rates are recognised as a key driver, borrowers also look to refinance to consolidate debt, release equity, buy out a partner, remove a guarantor, or take advantage of a lender offer.

So, is there a best time to refinance? Industry experts say there isn’t a one-size-fits-all solution.

“Every customer is unique, and understanding their individual circumstances when supporting them in their home-buying journey is critical, including when people decide to refinance,” says Peter Bouhlas, Bankwest’s general manager of home buying.

“Identifying the best time to refinance is almost completely dependent on borrowers’ individual circumstances, so it comes down to finding a lender that is willing to take the time to adequately understand customers’ needs and expectations.”

Lending policies, credit assessment criteria and eligibility vary between financial institutions, so it’s important for borrowers to consider their individual circumstances, or seek the advice of a financial professional, to understand what options are available and the most appropriate strategy for their refinancing goals.

Bhisan Raj, general manager of broking at homeloanexperts.com.au, says it’s important to remember that refinancing comes with paperwork and expenses, which can include hefty discharge costs.

“For example, if a client has to pay lenders mortgage insurance again, due to an LVR above 80 per cent, then refinancing might leave them worse off financially, even if it means getting a lower interest rate,” he says.

“Also, if a client is on a fixed-rate term, they will probably have to pay break costs to refinance and a broker must analyse whether the benefits of refinancing outweigh the expense of the break costs.”

Raj says the financial habits of each client should also be considered before refinancing.

“Cash-out refinances for consumers who spend a lot are risky,” he warns.

Ultimately, the decision to refinance comes down to knowing what you want to achieve and then weighing the costs versus the benefits.

“The determining factor for when to do it is whether it will improve the home owner’s financial position enough to make up for the cost,” says Raj, adding that refinancing every three to four years is best for many people, as banks give better deals to new customers.

“Individuals should do a health check of their home loan regularly, to ensure they have a competitive interest rate, and try to negotiate with their current lender or refinance for better rates if necessary,” Raj says.

“A periodic general review of their financial situation is also part of the right approach and brokers can help with this.”

Bouhlas says selecting the best home loan product is rarely as simple as looking for the lowest rate, especially when the difference between lenders’ rates can be negligible.

“It’s becoming more common to see borrowers refinancing to make their money work better for them,” he says.

“That can include, of course, a lower rate, but also moving to products that provide greater flexibility, such as through providing a redraw facility, or up to nine offset accounts [as provided with] Bankwest’s Complete Variable Home Loan package.”

Bouhlas says the benefits of refinancing with Bankwest include a choice of weekly, fortnightly, or monthly repayments, with extra repayments possible on eligible loans.

“This means that given interest is calculated daily, making smaller, more frequent repayments may result in less interest charged overall, and can help people pay off their loan sooner,” he says.

Bankwest proactively supports customers through their lending journey by offering personalised rate reviews through the Bankwest App, and an annual Home Loan Health Check-Up.

Regardless of what you choose to do, however, it’s worth doing your homework to ensure refinancing puts you in the best financial position for your circumstances.