4 benefits to refinancing your home loan
Have you ever thought about refinancing your home loan? It’s a big decision, but there are a number of key benefits in doing so. If you’re hoping to pay your loan off sooner, reduce monthly payments, borrow against the equity you’ve built, or secure a better interest rate, refinancing could be a great option for you. Here are four benefits to refinancing you might not have considered.
1. Shorten your term
Of course, term length can move in two directions. If your financial situation has changed for the better and you can afford to pay more every month, you could refinance your home loan with a shorter term. This way, your mortgage will get paid off sooner and you’ll be making the most of your increased income.
Of course, you don’t need to refinance in order to do this but it is certainly one option if you’re considering this process. Since you may be able to refinance to a lower interest rate, the differences in your monthly payments would be less severe, leading to less money spent on interest over the life of your loan.
2. Access equity
If you’ve already paid off a chunk of your mortgage you could actually use the additional funds as a deposit against further borrowing. Refinancing to access equity can be undertaken to free up cash for home renovations, but there are numerous things you could do with these funds to make them work for you. If you do choose to access your equity, it is recommended that you don’t spend it on short term expenses (such as a holiday) and instead invest in your future. Renovations around the house should ultimately lead to an increase in value, for example.
3. Attain a better interest rate
Some people can decide where to shop on a weekly basis depending on who has the best specials, why don’t they spend the same time and effort on reviewing their home loan for a far larger, long-term benefit? In some cases, your interest rate may no longer be particularly competitive. Refinancing to secure a better interest rate is a common undertaking and one that can be hugely beneficial depending on your circumstances. Your loan may be a few years old already and you may either be outside of your term for fixed rate interest, or a flexible interest rate may be shifting away from a rate you are comfortable with. It’s definitely worthwhile investigating what sort of interest rates are being offered so you can determine whether refinancing might be the best way to move forward, in the process shaving a considerable amount on interest over the life of your loan.
4. Consolidate your debt
If you have numerous loans from multiple lenders – maybe a credit card that’s gotten a bit out of hand – refinancing your loan can be a good way to lump all of this debt together. In many cases a home loan will have a lower interest rate than a credit card, therefore can reduce the amount of interest you pay, allowing you to potentially pay this debt off sooner for less. However, debt consolidation isn’t always a good idea. If you simply move this debt to your home loan, you may be paying for your credit card debt for the next 30 years. It is important that if you do consolidate other debt into your home loan, you pay off that portion of your debt as quickly as possible. It’s best to talk to your lender about your existing debt to find out if home loan refinancing is the right option for you.
Refinancing is a big decision and not one to make lightly. Speak to our expert team for more advice or to find out more about our refinancing options.
This information is general in nature and does not consider your individual financial situation or needs. You should consider whether this is appropriate for you.