There are many advantages to refinancing your home loan that could save you money and decrease the duration of your loan. While refinancing your loan can be beneficial, there are risks involved, so make sure you consult Our Mortgage Options for the right advice.
Before You Refinance Your Home Loan
Refinancing a home loan will not benefit everyone. Consider these important things before you begin the refinancing process:
- How long are you planning to keep the house? Refinancing a home loan is only beneficial if you are planning to own the home for at least a few years. Think about where you will be in three years time. If you can’t see yourself with the same house, refinancing may not be for you.
- Think about the whole term of the loan. How much have you already paid off? Low interest rates may not be enough to make refinancing your home loan financially worthwhile. Be clear about the costs of changing lenders. Consider administration fees, exit fees, valuation, legal fees, and stamp duty.
- What is your goal? Do you want lower repayments? Flexibility? Lower rates? Or debt consolidation?
- Is your income secure?
Advantages of Refinancing Your Home Loan
- Refinancing your home loan may allow you to secure a lower interest rate. A slight change in interest rates can have a major impact on loans over a long period of time. Currently, interest rates are at incredibly low levels so it is a good time to refinance.
- You may be able to increase profits immediately on your investment property by refinancing your loan – as lower monthly payments will give you an increased cash flow.
- Protecting yourself against the risk of rising interest rates is possible by switching from an variable to a fixed-rate loan.
- Refinancing your loan can also reduce the duration of your loan. However, this will probably mean larger monthly repayments.
- Refinancing your home loan can consolidate your debt. If you have credit card loans, personal loans, or other high-interest loans, you can combine them with your home loan and pay one monthly repayment. Credit card loans, for example, can have interest rates as high as 20% – that’s well over double the interest rates of home loans. Make sure you do not lower your monthly repayments. Instead, use the savings to pay off your debt as fast as possible.
- Savings from refinancing your home loan can be used to increase the value of your property. By lowering mortgage repayments, you may be in a position to afford home improvements. However, this will increase the life of your loan.
When You Shouldn’t Refinance Your Home Loan
- If you have a sound relationship with your current lender, it isn’t advised to refinance your home loan for marginally lower interest rates. In doing so, you risk the possibility of poor customer service from your new lender, which could cost you.
- If you are twenty years into your loan, refinancing may reduce repayments, but it will also increase the term of your loan and cost you more money. It’s best to stick it out, if possible.
- If you are planning to sell the house within the next three years, refinancing may cost more than you will save.
How We Can Help
There is so much to consider when it comes to refinancing your home loan. If you’re considering refinancing, give Our Mortgage Options a call and we’ll take a look at your particular situation and give you comprehensive advice on your best options.