7 reasons to refinance your home loan
7 reasons to refinance your home loan
If you have a home loan, there are many reasons you may consider refinancing. Refinancing your home loan is the process of taking out a new mortgage to replace an existing loan.
That could include wanting to borrow more, access different home loan features or simply to get a better interest rate.
We explore the more common reasons for refinancing, including a few you may not have thought of.
1. You’re not getting the best rate
If you’ve been with your current lender for a while, you may not be getting the best rate on your home loan.
After all, some lenders reserve their best interest rates for new customers.
That means it often pays to shop around to find out what the best rate available is. When you do, make sure you compare comparison rates and not the headline interest rate. If you’d like some help, contact our team & we can refer you to our expert mortgage broker who will do all the heavy lifting for you by comparing multiple lenders that are most suitable to your specific situation.
2. You’re not getting the best features
How much you’ll pay on a home loan doesn’t always have to come down to your interest rate or even your fees and charges.
Features such as an offset account or redraw facility can help you reduce the amount of interest you pay and let you pay off your home loan sooner.
If your current home loan doesn’t let you take advantage of these facilities, and you’d like the chance to make extra repayments, now might be a good time to refinance.
3. You want to renovate or extend
Unless you’ve saved a lot of money, renovating or extending usually requires borrowing additional funds.
This could make it the perfect time to refinance. That said, there may be other alternatives to raising the money, such as extending or increasing your current loan, redrawing any additional repayments you’ve made, taking out a construction loan, using a line of credit or personal loan.
However, often refinancing is the cheapest option.
4. You want to buy an investment property
If you’re looking to buy an investment property and you have equity in your own home, you may be able to use this equity in place of a deposit.
To do this, you’ll generally have to owe less than 80% of the property’s value, even with the amount you’re using on your investment property – although some lenders will let you borrow more with lenders mortgage insurance (LMI). If you’re considering this approach, you’ll generally need to refinance your home loan.
5. You need to consolidate debt
Life can be expensive and sometimes we need to borrow money for things outside of the home, such as cars or holidays.
Home loans tend to attract a significantly lower rate of interest than credit cards, car loans or personal loans. So, if you have a substantial amount of personal debt it may make sense to refinance and consolidate it into your home loan to make your payments become more manageable.
If you choose this approach, however, it always pays to remember that a home loan tends to have a longer term than a personal loan. That means, even if you reduce your repayments in the short term, you could be paying more in the long run. Seek advice to understand your specific circumstances.
6. You want to pay off your home loan sooner
Our circumstances sometimes change after we take out a home loan, and often that’s for the better.
If you’ve received pay rises, bonuses or windfalls, you may want to pay off your home loan sooner than you had originally imagined.
By refinancing, you may be able to reduce the term of your loan so that you can do just this, reducing the amount of interest you’ll pay and saving yourself money in the process.
7. You want to fix your interest rate
Interest rates are currently at historic lows, but most economists believe that it’s inevitable they will rise at some stage in the future. By refinancing your home loan you may be able to fix your interest rates for a period of time so that you’re protected against potential rate rises for some time to come.
This could be a particularly attractive tactic if you know you have large expenses such as school fees on the horizon that may affect your ability to make your higher repayments.
However, we always inform our clients to be warry of mortgage brokers pushing you to lock in a 2 year fixed interest rate. Many mortgage brokers do not have your best interest in mind when making this recommendation, they are thinking about their hip pockets. You see, mortgage brokers receive upfront commissions from the bank or lender that you establish your mortgage with. This is great, as the lender makes this payment to your mortgage broker and generally it is at no additional cost to yourself & is payment for the comparison, advice, and implementation of your mortgage.
Dealing with banks & lenders can be a nightmare. Whether it is waiting on hold, understanding the red tape or the terms & conditions, a mortgage broker can do the heavy lifting for you & they get paid for their service.
However, mortgage brokers also receive an ongoing commission or trail commission for continuing to service you & answer any questions you have about your home loan. Furthermore, if you are to change lenders within 2 years, your mortgage broker will have their commission crawled back from the lender. So we see far too often, lazy mortgage brokers that recommend 2 years fixed interest rate loans, to ensure they receive their commission & do not receive a crawl back.
You will generally receive a Christmas card or anniversary card leading up to the two years, so they can then refinance your mortgage.
There are a number of reasons to refinance your home loan.
These are just some of them.
A mortgage broker can help you compare the cost of refinancing through a range of lenders and explore the best option for your circumstances.
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Original Source: Realestate.com.au
https://www.realestate.com.au/home-loans/7-reasons-to-refinance-your-home-loan