Top 5 reasons to refinance your home loan
Your mortgage is most likely the largest investment you will make, so it’s a great idea to constantly assess your home loan and see if refinancing can provide you with additional benefits.
Refinancing is when you switch your mortgage to another bank. It can provide you with a valuable opportunity to save money, access improved loan features, consolidate debt or tap into your home’s equity.
5 reasons to refinance:
1. To shorten the term of your loan
With interest rates at a record low, you may find that repayments on a 20 year mortgage are not much more expensive than a 30 year mortgage. If you’re able to meet the higher repayments, refinancing to a shorter loan term will make you pay your loan off quicker and save you money over the life of the loan.
2. To lower your interest rate
Refinancing your mortgage to a lower interest rate could mean drastically reducing your payment and saving thousands of dollars in interest. Lowering your mortgage payment can also save you hundreds of dollars per month that could be saved or invested.
3. To change from a variable rate to a fixed rate loan
If you currently have a variable rate mortgage, now may be the perfect time to refinance to a fixed rate loan. If interest rates rise again during the fixed period of the loan, you can save on interest repayments and a having a fixed payment is easier to plan and budget for.
4. To cash out home equity
Refinancing your home loan can be a great way to access home equity so that you can invest in a rental property or shares. This is called ‘gearing’. Alternatively, you can use your equity to renovate, for home improvements or any other worthwhile purpose.
5. To consolidate debt
Rather than paying off personal or car loans at a high rate, it might be worth consolidating your personal loans into your home loan so you can pay off your debt at the lower rate. This enables you to pay the debt off faster and potentially save thousands of dollars in interest payments providing you maintain you repayments at current levels.
Other features to look out for in a home loan include:
- Flexible repayments – the option to pay extra off your loan when you can
- Redraw facility – enables you to withdraw any extra repayments if you need the cash
- Offset Account – enables your savings to offset against your loan balance reducing interest to help pay your home off quicker
- Flexible rate options – such as switching your loan between a variable rate and fixed rate, or splitting your loan
- Portability – enables you to take your loan with you when you move
When refinancing your mortgage, you also need to consider the fees, such as the break costs, that are involved. Most importantly, you should weigh up the pros and cons of your particular situation and establish whether your goal is a shorter loan term, lower repayments, accessing equity or consolidating debt.
If you have any questions about refinancing, feel free to leave a comment below.
^Ryan, Product Manager.
This is general information and does not take into account your personal financial objectives, situation or needs. You should consider this information in light of your own individual circumstances before making any investment decision.