If you’ve noticed interest rates are ultra-low at the moment, you’re not alone! Many homeowners are eyeing the rates and wondering if they could refinance their mortgage to get a better deal. Homeowners on an interest-only or fixed-rate mortgage may think they’ve lucked out, but that’s not necessarily the case. Any type of loan can be refinanced these days, but there’s a pitfall – fees could outweigh your potential savings. Read on to learn whether refinancing your interest-only or fixed-rate mortgage is the right option for you.
Interest-only mortgages
Interest-only home loans allow you to make repayments that cover just the interest on the loan. The interest can be either fixed or variable, and you pay it back for a set period – 5 years, for example.
During the set period, your regular mortgage repayments will be relatively low, leaving you with some extra cash. Sounds too good to be true, right? In a way it is. Since you don’t pay off the principal at this time, the amount of borrowed money doesn’t get any smaller.
Many property investors on the Sunshine Coast are happy with this type of loan because they typically put the property back on the market quite quickly, aiming to make a tidy profit. But for the average Australian homeowner, decreasing the balance on your loan is often a better option because you will gradually increase home equity over time.
Is it a good idea to refinance interest-only home loans?
Depending on whether your interest-only loan has a fixed or variable rate, refinancing to a new loan may or may not be a good idea.
Fixed rate loans
For fixed rate loans, break costs are a big issue. What are break costs? They’re a kind of penalty fee for closing a fixed rate loan before maturity. Different lenders use different formulas to calculate break costs. It’s not unusual for break costs to add up to thousands of dollars, meaning they can cancel out any savings you’d make by refinancing.
But don’t give up just yet. A mortgage broker specialising in refinancing can help you understand the true impact of break costs and whether refinancing your interest-only loan is worthwhile for your Queensland property.
Variable rate loans
When it comes to variable rate loans, the good news is that there are no break costs. But that doesn’t mean you’re completely off the hook when it comes to refinancing fees. There could be discharge fees on the existing loan and upfront fees on the new one. A professional mortgage broker will let you know where you stand and whether refinancing makes sense for your loan.
Get the advice of refinancing specialists
A home loan is a big commitment. Refinancing can make the journey cheaper and smoother – but only if the benefits of switching your loan outweigh the costs.
If you’re interested in refinancing your interest-only or fixed term home loan, contact the friendly, experienced mortgage brokers at Sunshine Coast Financial Solutions today. They’ll explain everything you need to know and help you find a refinancing solution that suits your personal situation.