The short answer to this intriguing question is ‘as often as you want to’. Refinancing, aka remortgaging, can be something you do regularly, to either save money with a better interest rate, adjust your repayments or release some equity to achieve life goals.
However, refinancing always involves some cost. Also, if you apply for a mortgage or credit often, it can affect your credit rating. These risks need to be balanced against the benefits you’re seeking.
Before we go into the finer detail, let’s make sure you understand the difference between refinancing and making changes to an existing loan.
What does it mean to refinance?
Refinancing refers to the process of getting a completely new loan to close down and replace an existing one. You usually sign a bunch of documentation to get a new loan going and immediately use it to repay the existing mortgage. It also often means moving from one lender to another.
It’s important not to get refinancing confused with refixing or restructuring. Refixing involves moving to a new fixed interest rate for a specific period of time; it’s something you usually organise just before your current fixed rate term is up. Restructuring is the task of looking at how your existing loan is set up, then making some adjustments to suit new circumstances. For example, you could restructure your loan by moving from floating to fixed, or vice versa. Or you could restructure by offsetting the loan against your savings account.
Why would you want to refinance?
There are multiple reasons to refinance. Here are some of the common ones:
- You want to change lenders. This could be to secure a lower interest rate or because another lender is making it very attractive for you to move. It could even be because you’re unimpressed with your current lender’s service.
- You’re getting married. Marriage usually means sharing assets, like houses and cars, as well as the responsibility for mortgage payments. Shortly after getting married, you’ll probably want to refinance and put the house/mortgage into both your names.
- You’re getting divorced and want to remove your ex-partner from the mortgage. Putting the home loan in just your name requires refinancing; it’s not simply a matter of changing a few documents.
- You want to release some equity to spend on something else. As your home loan ages, you get more equity in your home – equity being the difference between the home’s value and the amount of home loan remaining. Refinancing to free up some cash can help you to achieve goals, like doing up your house, buying a boat, buying another property or heading off on a big travel adventure.
- You want to consolidate debt and pay less interest. If you have maxed-out credit cards or personal loans that command a high interest rate, you can refinance to pay off debt. It effectively means you’re moving debt from other places into your mortgage, which charges lower interest.
- You’re finding mortgage repayments hard to meet.
Maybe you lost your job, had an accident that’s keeping you away from work, got divorced, had a baby, paid for education, got sick or took unpaid leave to care for a family member. For various reasons, your income could have gone down or your expenses might have increased, or both. Refinancing could give you the option to make smaller repayments over a longer period of time.
The costs of refinancing
As we mentioned at the start, the thing that will dissuade you from repeatedly refinancing will be costs. If you’re refinancing and switching lenders, your costs could include:
- Break fees, or early repayment charges, to get out of a fixed rate agreement
- Repayment of cash incentives you may have taken when establishing a mortgage
- Exit or mortgage discharge fees
- Lawyer costs to get the mortgage agreement changed
- Registered valuation costs, if your lender needs an up-to-date market value for your house
- Application fees
Of course, your negotiations with a new lender could mean they’ll agree to contribute to all or some of these costs. It’s common for bank and non-bank lenders to come up with an enticing offer to claim you as a customer.
Let the calculator do the talking
Our interest rates page and mortgage repayment calculator can help you to craft up a cunning plan for refinancing. Check out the rates offered by various lenders, then use them in the calculator to crunch the numbers. We’ve written a handy guide to using a mortgage repayment calculator. It means you can do your homework before you push the ‘go’ button on refinancing.