According to experts, if you are on the same mortgage since the past three years or more, chances are there are better deals in the market that you may be missing out on.
Steven, a HashChing mortgage broker, explains, “It is good to do a health check on your mortgage from time to time. My suggestion is then to ask yourself a question. What is the benefit for me to refinance the existing mortgage?” He adds that “There will always be a small fee to pay to refinance the loan, such as government mortgage transfer fee, loan application fee and valuation fee. So you need to ensure that the benefit of transferring your mortgage is more than the cost of getting a new loan.”
Refinancing your home loan can potentially save you thousands of dollars by switching to a lower interest rate. However, just because a better rate is available does not mean you would necessarily save money by refinancing your home loan. Therefore, it is always important to weigh your benefit vis-à-vis the cost of refinancing your home loan to make an educated decision.
Reasons To Refinance Your Mortgage
Refinancing your home loan means changing your existing home loan with a new one, and often, with a new lender. Getting a lower rate is one of the most common reasons for refinancing, as banks no longer reward loyalty and tend to offer more discounts to new customers than existing ones. Besides saving money in interest, there are other reasons to refinance your mortgage, such as:
- Get access to extra features in your home loan
- Manage debts by rolling them over in your mortgage
- Use the equity in the property to fund another property or renovate
However, if you have recently switched jobs or intend to sell off the property in the near future, it may not make sense for you to refinance your home loan. Besides, if you don’t have much balance outstanding on your mortgage or the total cost of refinancing exceeds the savings you are going to pocket – think twice before switching your home loan or speak to a mortgage broker to understand your situation better.
Still confused about whether to refinance or not? Here are a few reasons to refinance your home loan in 2019:
a) You Want To Reduce Your Monthly Repayments
If your mortgage is more than two years old, we urge you to compare home loan deals online to make sure you are on the best possible deal for your home loan or not. Owing to the increasing competition in the mortgage market, home loan rates are quite low at the moment and if you are paying anything more than three point something on your home loan – you are possibly throwing away your hard earned money at the bank.
Here’s a simple fact to get you thinking – A reduction of 0.5 per cent from 4.25 per cent to 3.75 per cent per annum on a standard $300,000 home loan could save you over $31,000 over the life of the loan. Use this online calculator to work out your savings for yourself.
b) Your Fixed Rate Period Is Expiring
A fixed rate home loan offers many benefits, and is quite popular with Australians. However, the fixed term only lasts for three to five years. At the end of your fixed term, your interest rate rolls to the standard variable rate offered by the bank, which doesn’t have any discounts. However, you can avoid this situation by opting for another fixed term or refinancing your home loan with another lender offering a lower interest rate.
c) You Wish To Do Some Renovations Or Buy An Investment Property
If you have been making your repayments religiously over the past few years, chances are you have built considerable equity in your home that you can use for making renovations to your home or funding the deposit for another property.
A cash-out refinance lets you borrow money against the equity in your home at a competitive rate – allowing you to expand your property portfolio or increasing the value of your home through thoughtful renovations.
Let’s say your house is worth $500,000 and you have $300,000 left on your current mortgage. This means you have $200,000 in home equity. Therefore, it is possible for you to borrow another $100,000 (up to 80 per cent of the value of your home), bringing your total outstanding to $400,000. Some lenders may also allow you to borrow more than 80 per cent of your property’s value if you are ready to pay Lenders Mortgage Insurance. Speak to a mortgage broker to understand your options better.
d) You Want To Consolidate Your Personal And Credit Card Loans
It is also possible to refinance your home loan to consolidate your other loans and debts into a single and potentially more affordable repayment. This is especially useful if you have high-interest rate loans such as credit card debt, personal or car loans. By leveraging the equity in your home, your home loan provider will expand the size of your loan so that the increased portion can be used to pay off your other debts while you make a single repayment each month to pay down your mortgage that includes the amount you used to pay out those other debts.
Is It Time To Refinance Your Home Loan?
There are very few reasons not to refinance your home – and the most important one is what it is going to cost you. Yes, like most good things in life, refinancing your mortgage isn’t free. Therefore, it is best to determine the costs and calculate your breakeven point before you decide to switch your mortgage provider. Read this article to learn how to refinance your home loan in a few simple steps.
Alternately, you can find a verified mortgage broker near you to discuss your situation in earnest and take the next steps to get the max out of your mortgage confidently.