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Are you aware how much interest you’re paying on your mortgage? If not, you’re probably not alone. Loads of Aussies aren’t aware how much they’re paying yearly, or that they might be better off switching to a more economical home loan to save money.
What does it mean to refinance a home loan?
If you whip out your statements only to realise that your current mortgage isn’t looking as competitive as it once was, don’t worry. home loan refinancing is actually pretty popular these days, which means there are typically loads of offers out there. Refinancing a home loan is the process by which loads of Aussies are switching from their existing mortgages to a better deal. It involves taking a look at home loans are available on the market and seeing if you can’t find something which has lower interest rates, less fees, and perhaps even more flexibility.
Refinancing your home loan can mean that you might be able to pay thousands less in interest a year, while consolidating your finances at the same time. So is home loan refinance for you?
When to consider home loan refinance
What we generally want out of a mortgage refinance is a better deal. This means you’ll probably want to consider home loan refinance if:
- Your original loan is not as amazingly competitive as it was when you first got it
- Your financial circumstances have changed, and you’re hoping for the chance to make larger or smaller, or even earlier repayments
- You’d like to spend less on your mortgage repayments right now cause you’ve got something else on the cards. This could be anything from a new car to fixing up your house.
- Market rates are low and you’d like to take advantage of a great fixed rate
- Your finances are in desperate need of consolidating. This might be the case if you’ve got several loans out simultaneously, or a sizeable credit card repayments to make
Reasons not to consider home loan refinance
Under certain circumstances, you’re better off not looking to refinance your mortgage. This might be the case if:
- You don’t have the security of dependable income for the time you’d like the home loan, as you’ll unlikely find a stellar interest rate
- Same applies if your credit rating has dropped since you took out your original mortgage
- You have a low loan balance and no interest in accessing equity (we’ve covered this below)Exit fees or prepayment penalties make it unprofitable to leave your current home loan
- You’re unsure whether you’ll be holding onto the property for very long
What are the benefits of refinancing?
As we’ve noted, there are several pros of refinancing your home loan. If you’ve checked out the market and considered your financial circumstances, you’ll probably want to know more about what you stand to gain. Great news! A well thought-out mortgage refinance could mean you’ll be able to enjoy:
- Lower interest rates. And of course, this means lower repayments. Keep an eye on how the market’s moving, as a smart time to lock in a fixed interest rate home loan will be when interest rates are low.
- Enjoy special offers. Because your home loan will probably a large chunk of your debt, it’s also a good idea to look out for bonus offers from new lenders. Some providers may offer cashback incentives of up to $2,000, or sign-up bonuses all through the year. Spring is a good time to be extra sharp, this is ‘mortgage season’ when offers will likely be at their most competitive.
- Debt consolidation. As we’ve mentioned, it can be great to reduce the stress and maths of multiple loans by putting all your loans in one place. Even better if you’ve snagged a great, low interest deal with few fees and restrictions.
- Extra features. The best home loan for anyone is the one with the lowest interest payments. Some home loans and mortgages will help you do this while offering the flexibility of features like early repayment, additional repayments, portability, offset accounts and redraw ability.
- Equity. Once you’ve been repaying your home loan for a period, you can unlock these funds via a credit home loan. This frees up equity, or the amount you’ve been repaying, for things like buying another property or car. This works cause you’re likely paying less interest on your mortgage than you would be on a personal or car loan, for example. This means you’re adding on to your home loan however, so remember that it will most likely take you longer to pay off that mortgage.