Heard about mortgage refinancing? 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 people in Australia refinance their home loan.
Get a better rate
The most common reason for people to refinance their mortgage is to get a better deal. But be careful 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.
Many people only discover the full details about their mortgage when it’s 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. An 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.
Rebuild or renovation
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.
Access home equity
Over recent years in the property market houses have appreciated at a significant rate. e.g. a home you bought for $300,000 five years ago, might now be worth $500,000. Refinancing your mortgage with a home equity loan might let you tap into that extra $200,000 equity.
Consolidate your debt
If you have personal loans or credit card debts, it may be worthwhile exploring the opportunity to consolidate your debt. The interest rate on credit cards and personal loans is much higher than housing debt and refinancing can assist in reducing that interest expense. Whilst this sounds good in practice, you’ll want to make sure you don’t extend the life of the credit card or personal loan debt over the entire length of the home loan term. Where possible, increase repayments to cover the newly consolidated debt. You’ll not only pay less interest, but you’ll also reduce the term of the loan.
Need advice on refinancing your mortgage?
My Property & Finance can help you assess whether refinancing your home loan is right for you. We can also match you to the best product from our panel of more than 35+ leading lenders. Contact us today for more friendly and professional home loan advice.