When should you consider refinancing your mortgage?

When should you consider refinancing your mortgage?

Answer: whenever it makes financial sense to do so.

In the past, most people who took out a mortgage doggedly continued with it until they had paid it off. These days, people refinance their mortgage much more frequently. The average duration of a home loan in Australia now is just 4-5 years. Here we look at some of the reasons why people in Australia refinance their home loan.

Lower rate

The most common reason for people to refinance their mortgage is to get a better deal. The banks often compete for your business by offering low interest rates and cash payment incentives to refinance. If your current lender can’t or won’t compete, a lower rate can make a big different to your monthly repayments. 

You do however need to be careful that you don’t become interest rate-fixated. When you refinance your home loan, you need to consider fees and charges as well as the interest rate. You often have to pay charges for exiting your current home loan, plus charges for taking out the new mortgage. You need to be sure that in refinancing your home loan that you’ll be better off in the long run after taking into account all costs.  I can help to explain the costs of refinancing and compare your mortgage repayments based on your current rate and the offers available from other lenders.

Flexibility

Many people only discover the full details about their mortgage when it is too late. They try to do something and get told by their lender that either they can’t do it, or they will incur a hefty charge if they do. One example is a redraw facility – the ability to pay extra money into a mortgage and then redraw it later. This feature is not possible with a basic home loan, so many people refinance their mortgage to give themselves this sort of increased flexibility.

Renovations

If you carry out renovations, it often makes sense to refinance your mortgage and take out a construction loan so you only pay interest as building progresses.  Once construction is over, it might make sense to refinance your home loan again so that you consolidate the total amount you owe into a loan that minimises your interest bill, while giving you a degree of liquidity.  Alternatively, you may want to refinance to simply borrow extra funds for your renovation project.

Home equity

If your home has appreciated in value, refinancing your mortgage may allow you to tap into the increased equity.  Access to these funds might help to finance a renovation project or investment opportunity.

Consolidation

If you have a number of different loans including personal loans, car loans and credit card debts, it may be worthwhile consolidating those debts into your home loan. Your home loan is usually the cheapest interest rate and it means you have one easy repayment. There are other factors to consider - if you consolidate a debt that it over a 5 year term to your home loan of 30 years, you will pay more interest over the life of the loan. This is something that Garland Finance can talk you through and explain the risks and benefits.

Contact me at crissa@garlandfinance.net for a loan ‘health check’ and to discuss whether you should be considering refinancing your loans!

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