“Why should I refinance my home loan?” For many homeowners, the idea of refinancing can seem like an unnecessary headache.
It requires paperwork, interest rate comparisons and financial decision-making – basically, all the things you had to do when you initially signed up for your mortgage. But in light of record-low interest rates and a predicted increase in property values, refinancing should be seriously considered.
What is refinancing? Basically, it involves taking out a new (better) home loan which is then used to pay off your existing mortgage. While everyone’s circumstances will differ slightly, here are some sound reasons to consider refinancing:
- You Could Be Paying Less Interest: The Reserve Bank of Australia has lowered the cash rate to an unprecedented low of just 0.75%. In line with this, many lenders are offering interest rates that are significantly lower than what was available a few years ago. As a result, refinancing could lead to you paying substantially less interest on your mortgage. For example, if you have a 30-year $600,000 mortgage with a 3.75% interest rate, then you could save $281 per month by refinancing to a home loan with a 2.9% interest rate. That adds up to an incredible $101,160 that you could be saving over the total life of the loan.
- You Could Pay Your Mortgage Off Faster: Some lenders won’t allow you to make additional repayments on your mortgage, preventing you from repaying the loan early. Refinancing can not only get you a lower interest rate, but it can give you access to a home loan that supports higher repayments. According to the ASIC Mortgage Switching Calculator, refinancing from a 3.9% interest rate to a 2.9% interest rate on a $450,000 mortgage (with 25 years remaining) could allow you to pay off your mortgage 49 months earlier just by continuing to make the same minimum monthly repayments as you were making on your original home loan.
- You Could Change to A Loan with Better Features: Not all home loans are created equally, particularly when it comes to the included options. And while your current home loan may have been the best choice originally, changing circumstances may result in you needing a better range of mortgage features. Refinancing could lead to you paying fewer fees and having access to redraw facilities, split interest rates and offset accounts.
- You Could Consolidate Your Debt: If you’re currently weighed down by personal debt then refinancing can be a great way to get your finances under control. Instead of making individual repayments for car loans, personal loans and assorted credit cards (all with exorbitantly high interest rates), you could consolidate that debt into your mortgage, significantly reducing your monthly repayments. Since you don’t want to end up paying 30 years’ worth of interest on your personal debt make sure you talk to an experienced mortgage broker about the best way to do this.
For more information about refinancing your home loan, contact the experienced professionals at SCF Solutions on Ph: 07 5437 9073.