In today’s competitive and ever changing mortgage market, its pays to review your home loan regularly to work out if you’re getting the best deal for your needs. And with Australia’s recent interest rate hikes, now is a good time to assess whether to stick with your existing mortgage or refinance.
Here we look at 5 reasons why refinancing your mortgage could be the way to go.
1. Pay a lower interest rate
Locking in a lower interest rate is why many people opt to refinance their mortgage. And with so many lenders and products to choose from, there’s a good chance you can access a more competitive rate with another lender eager to attract new customers. You may also find your existing lender has launched new and improved products since you first secured your mortgage.
Before switching loans, it’s essential to take into account more than just the interest rate. You should also calculate the fees associated with terminating your existing loan and taking out a new mortgage. This will help you determine whether or not taking out a new mortgage will save you money in the long run.
It can be beneficial to speak to a qualified home loan broker who will help you compare the pros and cons of holding onto your current loan versus refinancing. Mortgage brokers also have access to a variety of lenders and products and special deals, which is helpful if you do choose to refinance.
2. Access additional loan features
Refinancing your home loan can be a great way to access extra or more valuable loan features that might save you money or help you achieve other financial goals. This is especially true if your circumstances have changed since you took out your loan.
Additional features may include:
• A free redraw facility that lets you withdraw extra repayments as cash.
• Flexible repayments, whereby you can opt to pay extra off your loan if funds become available.
• Flexible rate options such as splitting your mortgage between a fixed and variable rate.
• A repayment holiday, enabling you to reduce or avoid mortgage repayments for a set period in special circumstances such as maternity leave.
• Loan portability, allowing you to move your loan to a new property.
3. Build your wealth
It’s no secret that property prices have increased significantly in most Melbourne suburbs in recent years. So chances are your home equity – the difference between your home’s value and your outstanding mortgage – has increased too. Refinancing your home loan can be an excellent way to access this home equity to invest in other properties, shares or managed funds.
It’s important to speak to your financial advisor before deciding whether this option is right for you.
4. Finance home renovations
You may also decide to use some of the equity in your home to renovate. In this case, it can make sense to refinance your mortgage with a construction loan, a line of credit home loan or personal loan. A construction loan is best suited to structural renovations such as adding new rooms, an extra level or a pool. A line of credit or personal loan is more suitable for smaller changes such as adding air-con or painting.
Refinancing for a renovation can enable you to increase cash flow during the renovation process, where you’ll need to pay for contractors and materials. What’s more, your existing mortgage might not offer construction options, so refinancing may be the only option.
5. Consolidate debt
Another reason to consider refinancing your mortgage is to consolidate your debt into a single payment. This can be a great option if you have credit cards or personal loans with interest rates much higher than home loan rates.
While this can be a great way to streamline your debt and reduce interest, be mindful of not extending the life of your personal loan or credit card to the term of your mortgage.
Need advice on refinancing your mortgage?
Mel 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 30 Australian lenders. Contact us today for more friendly and professional home loan advice.