If you’re a homeowner, you’ve probably heard of the idea of ‘refinancing’ your mortgage. Essentially, refinancing means securing a new home loan that repays and replaces your existing one.
You may consider refinancing your mortgage to lock in a lower interest rate or take advantage of better loan terms or features such as a redraw facility or flexible rates. You may want to access home equity to invest in properties, shares or a managed fund. Or you may be looking to consolidate debt into a single payment.
Refinancing can be an excellent option for many homeowners, it’s not right for everyone. Here we look further into some of the reasons you may be keen to refinance and what to consider before taking the plunge.
I want to pay less interest
You’re not alone. This is the most popular reason people choose to refinance their home loan. And if you’ve had your mortgage for several years, your current lender has probably introduced more competitive products since. You may have also done your research and found a better deal with another lender.
But while saving money can be an excellent reason to refinance, it’s crucial you consider more than the interest rate before switching loans. You should also research the fees you’ll need to pay for exiting your existing mortgage and signing up for a new one.
A mortgage broker can help you understand the pros and cons of refinancing your loan. They’ll review your current loan structure, income, assets and financial goals. Then they’ll look at other loans from their panel of lenders that might offer you a more competitive rate. Once your broker has found suitable products, they’ll also look at the exit and application fees to calculate your total cost saving. Sometimes, you’ll only save a couple of hundred dollars a year, and refinancing might not be worth your while. Other times, your broker may be able to save you upwards of $1,000 a year.
Sometimes, a mortgage broker can also negotiate a better interest rate with your current lender, without you needing to refinance.
I want to change loans
Refinancing your loan with a new lender may mean you need to pay Lender’s Mortgage Insurance (LMI). In this case, refinancing might not be a good move. But working with a mortgage broker has its advantages over going straight to a bank. A broker will generally have access to a panel of at least 30 lenders and can likely negotiate a better deal for you.
A mortgage broker will also help you understand any hidden loan costs and the different loan features that might save you money or help you achieve other financial goals.
I want to consolidate debt
Refinancing can be a good option if your credit cards or personal loan interest rates are much higher than your home loan rate. Debt consolidation may lower your monthly repayments, save you interest in the long-term and reduce your financial admin burden.
If you do decide to go down this route, be mindful of not extending the life of your personal loan or credit card to the term of your mortgage.
If you want to refinance to consolidate debt, a mortgage broker can guide you through every step of this process, providing expert advice and answering all your questions along the way.
Need more expert advice on refinancing your home?
As you can see, deciding whether refinancing is right for you is not always easy. But Mel Finance is here to help. We’ll help you understand your options and find the right solution for you. If you decide to refinance your loan, we’ll manage the process from start to finish. Contact us today for friendly and professional home loan advice.