6 reasons why refinancing your mortgage loan is right for you
Is your current mortgage helping you meet your financial goals? Australian borrowers might be missing out on good refinancing deals by not reviewing their current home loans.
A new poll by Aussie Home Loans found that despite 60% of borrowers believing they do not have the best deal in the market, the same proportion said they have not reviewed their home loans over the past year or since taking out their loan.
Over the past 12 months, only one in five mortgage holders in Australia have refinanced their loan.
Figures from Lendi Group, Aussie Home Loans' parent company, indicate that refinancing now could mean a potential savings of up to $2,000. This is possible if borrowers refinance to an interest rate that is 80 basis point lower than their current one.
For borrowers who might feel like their current mortgage has already lost its competitive edge, refinancing is the way to go.
Think of refinancing as another opportunity for you to reassess your financial standing and get a home loan that best fits your needs. Here are some of the biggest benefits you can get when refinancing your mortgage:
Get lower mortgage rates
Perhaps one of the most common reasons to refinance is to get a lower interest rate. Borrowers who stick to their current mortgage for too long might not be enjoying the same interest rate offered to new clients, especially if the cash rate is lowered.
When the Reserve Bank of Australia slashes the cash rate, home-loan providers typically pass on the discount to their borrowers, particularly those with variable-rate loans. However, they usually offer new clients with an even lower mortgage rate. If you want to take advantage of rate cuts, you can refinance your loan to lower your mortgage costs.
Extend or shorten your loan period
Refinancing will also enable you to shorten or lengthen your amortisation period. Depending on your current financial status, you may opt to either extend your amortisation period to spread out your loan or compress it to finish paying it off early.
Here's the thing: when you shorten your loan period, you will have to prepare for higher monthly repayments. Doing so, however, will help you save in the long run, given that the time that you are charged with interest will be reduced.
On the other hand, when you extend your amortisation period, your monthly repayments will be reduced. The catch, however, is that at the end of your loan period, you will have paid more as interest accumulates over time.
Reduce monthly repayments
When you refinance to a lower mortgage rate, you will be able to lower the amount of interest you pay on your loan, therefore reducing your monthly bill.
Refinancing to a longer loan period will also help you cut your monthly charges. However, as mentioned earlier, doing so will cost you in the longer term as interest charges build up.
Reducing your monthly repayments will be useful when your budget gets tighter, or when you are planning for another big purchase.
Switch mortgage-rate terms
One of the most significant decisions you will have to make when you get a home loan is whether to fix your interest rate or not. If you are not happy with your current rate term, you have the opportunity to switch when you refinance.
Switching to a fixed rate allows you to lock in a low-interest rate for up to five years. With a fixed rate, your repayments will not be affected even if the central bank hikes the official cash rate.
Changing to a variable rate, on the other hand, allows you to take advantage of the rate cuts. When there is an easing bias for monetary policy, it is best to stick with a variable rate to enjoy the likely rate reductions.
Access your built-up equity
The state of the housing market is one of the factors that dictate the growth of a property's value. When the market is on an uptrend, home values get a boost.
When you refinance, you get to access the built-up equity of your home. Home equity refers to the difference between the market value of your home and your remaining loan balance. Refinancing allows you to take a portion of your built-up equity, which you can use to fund any big-ticket purchases or investments.
You can also use your built-up equity to your advantage — since the market value of your property has increased, your lender will be more inclined to give you discounts when you refinance.
Consolidate debts
When you have debts other than your mortgage, it is often practical to consolidate and streamline them into a single loan. Refinancing allows you to do this.
Personal loans usually have higher interest rates, and paying them off quickly by consolidating them into your home loan can give your budget the necessary breather.
You need to be careful about this, however. When you consolidate, you have to try to make additional repayments to prevent interest charges from ballooning.
These are just some of the benefits of refinancing your home loan. it is vital for borrowers to review their current home loans and reach out to a professional to make sure that they are getting the best possible deal. Moreover, remember that reviewing your loan doesn’t always mean refinancing, and you may not even need to change lenders to get a better rate.
Reach out to our team today to know more about the refinancing options available for you!
Skybridge Capital is an MFAA accredited finance broker with expertise in commercial finance. Contact us for more information. An MFAA Approved Finance Broker is much more than your average mortgage broker.