10 Reasons to consider refinancing your home loan
You’ve got a mortgage on your home, and you may think you got a pretty good interest rate. That may not hold good now. The average owner-occupier variable principal and interest loan rate is about 4.13%, but unless you get it in the threes or lower, the banks are slowly draining you of your cash.
Ignorance may be bliss. However, it can also be expensive in this case. Taking care of our health means ensuring our body is in good shape, so too should we take care of our home loan to ensure it’s in the optimal financial condition. You have probably had a change in your life since you took out your first home loan (wedding, kids, promotion, etc.). So why shouldn’t your mortgage rate change as well? Perhaps your life hasn’t changed as much since you took out your loan, but your repayments have grown significantly as the interest rate creeps on the loan over time.
Refinancing is merely switching your existing loan for a new one (hopefully better) however finding a new lender is often a part of the process. Freshwater Financial Services helps borrowers get a better deal. Here are 10 reasons to think about refinancing your home loan.
According to Australian Bureau of Statistics, the average loan in Australia is $384,700. Although many of us have loan amounts that are much higher or lower than this, we’ll use this amount as an example. If you refinance your 4.13% mortgage to 3.59% on a 25-year loan, you would save $114 per month. Over the course of a year, that adds up to more than $1300. If you save some money, you can invest it into other household expenses or a family holiday.
- Pay off Your Home Loan More Quickly:.
If you used the same example above, you could pay off your home loan five years and a half earlier, so you’d be saving $53,136 in interest. Yes, that’s a savings of over five figures. Never underestimate the effects of small amounts of money over a long period of time on a loan.
- More Equity Leads To Better Rate:.
If the value of your property has increased since you bought it, it means you have a greater amount of equity. This may mean access to lower interest rates as well. Consequently, if you borrowed $450,000 to purchase a $500,000 house that is now valued at $600,000, your equity has increased 10 percentage points to 25 percent. Note that it works in reverse also, particularly if you bought at a higher interest rate and are in an area now where prices have dipped since then. You can easily find the value of your property using a few online tools.
- Switch to a fixed-rate mortgage or interest-only mortgage.
Perhaps you’re looking for a fixed rate for a certain period of time (fixed rate) or you want to decrease your payments (interest-only) for a while. Switching to a fixed-rate program is advantageous when you undergo significant life changes, such as the birth of a new child, and you want the certainty of knowing how much will be due each month. For personal reasons or investor strategies, you may want to borrow for only short periods of time and therefore choose interest-only. It is important to be aware, however, that interest-only isn’t paying off the principal while you’re only paying interest, and you will end up paying more over the life of the loan as a result. Fixed-rate or interest-only loans typically have terms of one to five years.
- Your fixed or interest-only rate period is coming to an end.
There may already be a fixed-rate or interest-only loan on your home that has to be paid off soon. Almost certainly your loan will swap back to a variable rate, and often this won’t be a good rate, which will give you an even greater surprise when it comes to your final payment amounts. Now is a great time to refinance and make sure you get the best deal. Take time to negotiate and get the rate you deserve, rather than what the banks are offering. Comparing lenders is a good way to see what low rates are available, and be sure to keep in mind that some non-bank lenders offer better deals with lower fees
- If you earn more, you can afford more.
If you are making more money than you did when you took out your loan, it might be time to step it up a notch. You might consider refinancing into a shorter home loan term, which would enable you to become mortgage-free sooner, and save thousands in the process. You also have the option of paying your loan off faster by paying more than the minimum. This could be combined with a refinancing to a lower rate lender to pay less in interest, or it can be arranged on your current loan if your lender permits it without any early exit fees. Make sure you read the details about this one.
- You want to borrow more and get more cash out.
In the event you need some extra cash and have sufficient equity in your home, you can refinance to access some of that money. Cash-Out Refinancings are often used to buy stock or a deposit for a new property. Additionally, it is an alternative to a personal loan that is also cheaper. However, make sure you do your sums, as adding an extra amount to a long loan could end up costing you more in the long run than a shorter loan. It’s possible to get out of this by paying extra to pay off the money you borrowed in, say, five years, and not the whole 25 or 30 years.
- Refinance for renovations.
The ‘Refinance to Renovate’ is generally used for major structural work on your home, like the addition of a pool or a new storey, and where the value of your home will be higher once renovation is finished. The value of your new and improved property can be used as collateral. Not all lenders offer this feature, so check with them and shop around to make sure you don’t have to pay a premium.
- Debt Consolidation.
A single low-interest payment to replace high-interest personal loans and credit card debt is a great way to manage household expenditure. The key is to stay committed to your plan and not replace your old debt with more personal loans and credit cards. Be careful while converting a short duration debt to a longer duration debt. If you add a shorter loan term to your mortgage, make sure you’ll end up better off when you’ve paid it back in 25 years. If not, you should try to pay down that part of the debt faster. It will have an enormous impact.
- Experience exciting new features that will delight you.
There is nothing particularly exciting about home loan features, but when they help you save money, such as interest savings through an offset account or redraw facility, or give you cool benefits such as a mortgage holiday, well then you might be a bit more curious. Finding a lender that offers you flexibility in changing your loan settings as you need is just as exciting as the basics of finding a lender. You probably didn’t realize that your current home loan isn’t fulfilling all your requirements, but here you are. It does not cost anything to look into refinancing your home loan and see if it could be updated.
For more details about home loan refinancing contact the Best Mortgage Broker in Sydney – Freshwater Financial Services
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