Do you think of your home loan as set-and-forget? Riding out whatever the original loan terms and prevailing interest rates dish up along the way?
You may be doing yourself a disservice, as there are a number of ways in which refinancing your mortgage can benefit you and your wallet!
1. Get a lower interest rate
In a competitive mortgage market, you may be able to refinance at a lower interest rate than what you’re paying right now – regardless of whether interest rates are rising or falling. The benefits of a refinance are that you can then…
2. Reduce your home loan repayments
For a given loan term, a lower interest rate means lower repayments. Which then frees up some of your income for other purposes.
Or you can…
3. Reduce the term of your loan and go on holiday with the savings!
Pay your loan off sooner and save heaps of money on interest by maintaining your current repayments with a lower interest rate. You can even use the extra money saved in interest repayments to go on holiday!
4. Switch from a variable to a fixed-rate mortgage (or vice versa)
You can lock in an interest rate for several years into the future with a fixed-rate home loan. This can help provide some protection against rising interest rates. On the other hand, when interest rates are falling, a variable rate loan is usually the better way to go.
Do realise, however, that even the financial experts are often wrong when it comes to predicting the direction of future interest rates. So before you make any decisions consult with an experienced broker or financial advisor.
5. Access equity or consolidate debt
Refinancing may allow you to access some of the equity you have in your home if your home has increased in value. This is one way to pay off higher-interest debt (such as credit cards), take a vacation, or pay for renovations to your home. All round, you get to keep more money in your back pocket, not the bank’s!
Caveat: Take care
Although refinancing a home loan can be a winning strategy, it’s not automatically true in every case. There are usually costs involved in loan exit fees as well as fees for establishing a new loan. It may be hard to gain a benefit if the difference in interest rates between the old and new loans is a minimal difference. So it’s worth checking with an expert before jumping into the switch.
Also, some discipline is required if you refinance for debt consolidation or to free up equity. You could be digging a deeper debt hole for yourself if you promptly max-out the credit card you’ve just paid off.
Wondering if you’re getting the best deal from your mortgage? Contact our Mortgage team now to see how we can help with refinancing your home loan.
This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs. Speak with a tax accounting specialist (such as TBFG) who is up-to-date with applicable deductions, tax law, and business structuring to get you the biggest return on your EOFY tax assessment.
