Refinancing lets you change your home loan to suit your new circumstances. Mortgage Choice recommends an annual Home Loan Health Check by your local Mortgage Choice expert to assess whether the original home loan you chose is still the most suitable option for you.
When you take out a new home loan, you use some or all of the funds to pay out your existing loan. The new loan often comes from a different lender, but many people refinance with the lender they've been using for years. If you move to a new lender, that lender will take care of paying out your existing loan.
Home loan refinancing may be used for different reasons including:
- Renovating your home or other home improvements such as a pool.
- Paying off your debts such as credit cards by rolling them into your home loan.
- Obtaining a cheaper rate, even if it means giving up a few loan features.
- To raise cash for a purchase such as a car.
- You want to switch from a variable rate to a fixed rate, perhaps because you can want to reduce the risk of higher repayments.
Refinancing can be a smart way to manage your money.
Here are a few ways in which you may benefit from refinancing.
- Peace of mind - a fixed rate can mean knowing what your repayments will be each month
- Reduce your monthly repayments through access to a lower interest rate
- Potential to pay off your loan faster through more flexibility
- Reduce your monthly repayments overall by consolidating credit cards, personal loans or other debts into a lower rate loan
- Free up some extra cash to finance a renovation or purchase an investment property by unlocking equity in your current property
When the Reserve Bank of Australia (RBA) raises its interest rates, banks and other lenders usually follow suit by increasing your mortgage repayments. Refinancing your home loan from a variable to a fixed rate can provide certainty with your repayments.
Your local Mortgage Choice broker can perform a free Home Loan Health Check to see if your current home loan is still the most suitable option for you after an interest rate rise.
When done properly under the right circumstances, loan refinancing can be very beneficial. However, there are drawbacks involved - namely the cost.
The reasons for refinancing should be legitimate and the calculations need to be run to ensure the long term savings outweigh the short-term costs.
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