Refinancing is replacing your existing mortgage with a new mortgage. You can refinance with your current lender or go to a new lender. It may be a good way to save you some money, but only if you take into consideration the actual cost of refinancing. You can reach out to us before making major financial decisions like refinancing.
What are the benefits of refinancing?
The most common reason for people to refinance is in search of a lower interest rate on their mortgage, but there may also be other motives. You may consider refinancing for the following reasons:
Interest rates may be lower
When you refinance the balance of your loan at a lower rate, you can reduce your monthly repayments and the total cost of your loan.
Seeking a fixed rate
If your current loan has a variable interest rate, or if your fixed rate term is ending, you may want to refinance to a fixed rate or partially fixed rate home loan to lock in a set rate on your monthly interest repayments for a set period.
Pay off your home loan faster
Changing from a 30-year loan to a 20-year loan will raise your monthly payment, but because interest is compounded, could save you thousands of dollars over the long term. If you can afford the higher monthly repayments, switching to a shorter loan term might work for you.
Extra funds for something else
If you have equity in your home, you can leverage it to pay for home improvements, pay off other debt or accomplish other goals.
Improved financial situation
If your credit score has increased or your loan-to-value ratio (LVR) has decreased, you might find a more competitive home loan.
Consolidation of debt
If you are experiencing financial difficulty a consolidation of debt may relieve the pressure.
Cash out for future investment
You may be looking to get a deposit ready to buy another property to build your wealth.
Things to consider
The total costs of refinancing
There are many upfront fees and charges to think about including establishment fees, legal fees, stamp duty and ongoing fees, which may apply. If your home loan is reasonably small, it may take some time before the savings of a lower interest rate actually make up for the cost of refinancing.
Remember that the interest rate is usually variable
Make sure you look at the ongoing interest rate, not just the honeymoon period if one applies.
Check the new loan has all the features you need
Which features do you want for your home loan? Find out about redraw facilities, offset accounts and additional repayments.
Explore all your options
Make sure you shop around and reach out to us if you have any questions. We can help you to find out which home loan is the most appropriate option for your individual circumstances before making the decision to refinance.