When was the last time you reviewed your current mortgage? Say, you have a 30-year mortgage plan, and you’ve been making repayments for 12 years. You still have 18 years to go, but the obligation seems to be overwhelming. What if we told you, just as an example, that refinancing could put back as much as $8K in your pocket? That is far out – but it happens all the time to people who are willing to make an effort to refinance.
You probably need to consider refinancing your mortgage – or start scanning the market for a better deal!
There are several situations where refinancing is a great decision. But first, what is refinancing?
What Does It Mean to Refinance Your Home?
Refinancing your home simply means switching loans to get better rates and terms to save on repayments. You can change your current lender or get another loan type with a new lender.
You can also switch your loan to get more features or move from a residential investment loan to an owner-occupier loan. Alternatively, it’s possible to refinance to unlock equity in your property.
Your reason for refinancing is going to come down to your individual situation.
When Should You Refinance Your Home?
The common reason for refinancing is to reduce your home loan repayments. So, if you think it’s possible to get lower rates and better terms from another lender, it’s okay to make the switch. This means you’ll pay less over the life of the loan.
Over the past ten years, Australian properties have increased value. If your property value has had a boost, refinancing can get you a better rate. Basically, it means your house has more equity, and this is something many banks like. Plus, they’ll be willing to give you the best rate to win your business.
If the fixed-rate period of your loan is nearing expiration, then you might want to refinance. In Australia, most mortgages usually have a fixed-rate term of 1 to 5 years, and then the rate will change back to a variable rate. Most variable-rate loans never have discounts, so you can switch to get another better deal.
You can also refinance when you’re willing to pay off more of the loan. In this case, the goal is to change the loan term to pay off the loan faster. If you have got a better paying job or a salary increase and you want to increase your repayments, switching to a shorter-term is ideal.
What Are the Pros of Refinancing
As long as you have valid reasons for refinancing, you can be sure of reaping several benefits from making the switch. These include:
- Saving some good money
- Getting better loan features
- Regaining control of your finances
- Unlocking the equity in your property
- Repaying your loan faster
There are a lot of lenders that are willing to take you in as a new client. Comparing home loans against your current mortgage can help you get even a better deal.
Refinancing can help you in several ways; however, it never works all the time. Be sure it’s the right decision before you consider making the switch, or else it can hurt you. For example, if you have a fixed-rate home loan, it’s advisable to think things through before deciding to refinance.
Also, if the setup fees of the switch outweigh the savings, then refinancing is pointless.
Whatever the case, invest time in reviewing the cost of your current loan and compare your options. Alternatively, you can ask your lender for a better deal before considering moving to another lender.