When interest rates are extremely low, refinancing your mortgage may appear to be a no-brainer. While this strategy has some definite advantages, refinancing is a serious financial transaction with significant risks.
Refinancing is the process of moving your mortgage loan from one lender to another. Since you already own the house, there is no need for a seller or settlement agent. But you will need to do a property valuation.
Considering the Benefits of Refinancing
A change in circumstances may indicate that it is time to review your home finances. Mortgage refinancing may be intimidating for many Since fees, interest rates, and monthly charges must all be evaluated. This is why you need to consider several variables along with the following benefits:
1. Gaining Increased Financial Control
Refinancing may provide you with more financial freedom by reducing your monthly payments. To pay off your mortgage faster, you may choose between a shorter loan term and higher monthly instalments at a lower interest rate, or you can choose a longer loan term and decrease your monthly dues to reduce financial stress.
To make your monthly payments more manageable, you may consolidate your debt into a single, lower-interest loan such as a credit card or a vehicle loan.
2. Gaining Access to Your Equity
You may access the equity you’ve built up throughout your house loan by refinancing it. When it comes to using your equity, the options are endless. Some examples include investing in new real estate, buying a new vehicle, taking a vacation, or remodelling your current house.
To obtain the best interest rate on a refinance, you’ll need more equity in your house. Instead of spending that wealth on other things, keep your income invested on your property. Before refinancing, it’s critical to be very clear about your financial objectives.
3. Getting Reduced Interest Rates
Many banks and other lending institutions have passed on the rate reduction to customers with competitively priced home loan products after the RBA (Reserve Bank of Australia) introduced a record low cash rate of 0.25 per cent.
It’s possible that by sticking with your current lender, you’re losing out on better offers that may lower your monthly payback costs or help you pay off your mortgage quicker by paying down the interest sooner.
Understanding the Risks of Refinancing
The benefits above may make it seem compelling to refinance your home loan. However, it’s not completely without disadvantages. Listed below are some risks you should consider when refinancing your home loan:
1. The Term of Your Loan Will Be Reset
Your loan term is reset when you refinance. If you have already paid off five years of a 25-year loan term, refinancing your house loan with a new lender will require you to pay out 30 years of interest instead.
2. Additional Fees
Refinancing usually entails lots of new costs that add up to tens of thousands of dollars. You may be able to get a better deal elsewhere, but you’ll have to check with any prospective lenders first to see whether moving your loan is worth it. Discharge costs, property valuation fees, and application fees are examples of these charges.
3. It May Take A Long Time
Refinancing may be a time-consuming procedure. Many debtors may believe that all of their efforts have been in vain. Discharging and transferring your debt to your new lender may take time, and the pace of the procedure is generally determined by the lenders involved.
When Should You Refinance Your Mortgage?
People refinance their home loans for various reasons, with one of the top objectives being to save money with a lower interest rate. If the interest rate you’re paying isn’t reflecting current market rates, or if you want to refinance for any of the other reasons mentioned, it’s a good idea to consult with a reputable mortgage broker for expert home loan guidance.
Refinancing your mortgage might be a sensible option since it allows you to decrease your monthly payments or receive a shorter loan term. However, you must weigh the pros and cons of refinancing before deciding if it’s appropriate for you.
Refinancing may help you save thousands of dollars over the life of your loan while also lowering your monthly payments. It is best to connect with a professional mortgage agent to help you through the process.
Mortgage refinancing may be a helpful tool in reaching your financial goals. FinanceCorp’s finance managers are mortgage experts that are highly qualified, trained, and experienced. We understand that the proper refinanced loan may help you pay off your mortgage quicker and for less, eliminate unhealthy debt, or renovate and add value to your house, all of which are positive moves. Call us today for more information.