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Why Should I Refinance My Home Loan?

Sep 26th 2015 at 2:07 PM

Refinancing allows borrowers to obtain a loan better suited to their current circumstances. The rapid increase in homeowner equity due to rising property values in Australia has resulted in a surge of people researching refinance options.

 

When making this decision find out what your existing loan is costing you and compare that with the refinancing you are offered. Additionally compare features of the new and old loans and factor in changeover costs.

 

There are two types of refinancing:

  • Internal refinance, where you switch mortgage products but stay with the same lender.
  • External refinance, where you switch everything including lenders.

 

When refinancing does make sense

 

  • Your lender’s rate isn’t competitive with others in the market
  • You are looking for more money to pay for home renovations, a child’s education costs, or invest in another property
  • You want to consolidate credit card debts or unsecured loans to a lower rate
  • You require cash out for investments

 

When it does NOT make sense

  • You are planning to sell the property in the near future
  • Exit fees / discharge fees or break costs are high on your exiting home
  • If your credit history has changed due to outstanding debts or defaults making it less likely you’ll get a good rate
  • You’ve got an uncertain income over the period of the loan

 

Switching to a Lower Rate

Wanting a lower interest rate and lower payments is one of the most common reasons to refinance. Many borrowers have been frustrated that their lender increased their interest rate by more than what was set by the Reserve Bank of Australia.

 

Equity Out

Some borrowers want to refinance to use the equity in their home to pay for home improvements. Remember that this will allow you to expand your property portfolio or value; it will also increase the loan term.

 

Debt Consolidation

Another reason to refinance your home loan might be to consolidate your debts and have one monthly payment. If you have multiple debts and you’re having trouble paying these off it could make sense to roll these debts together with your home loan. The interest rate on credit cards ranges from 10% to 20% and for personal loans the rate can be anywhere from 9% to 15%. By consolidating these debts into your home loan you can significantly reduce the ongoing payments and save on interest

 

It is always important when comparing between different loan options to make a full comparison. If you are still confused we have mortgage brokers that can assist you to refinance your loan.

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