5 things you need to know before refinancing


5 things you need to know before refinancing

Now that interest rates are at a record low and the majority of lenders have passed on savings, it’s a good time to consider refinancing. Finder.com.au says borrowers can save tens of thousands of dollars over the life of their loan by doing so.


So, is refinancing the right choice for you? Here’s what you need to know.


1. You pay less

Refinancing to a lower interest rate on your loan will in turn reduce your repayments. Although this sounds pretty great, it’s important to take in the big picture. If repayments are lower, your loan period could get longer.  


As a result, you may pay more in accumulated interest over the course of your loan. Before you refinance, take some time to do the calculations. A good mortgage broker can give you peace of mind by doing this for you.


Take away: Lower repayments may not be worthwhile if you’re paying more interest in the long term. Check this out before committing to a lower rate.


2. Make your loan shorter or longer

Depending on your circumstances, refinancing a loan can extend or shorten its life. Sometimes, an individual takes out a loan during a time in their life when they can only make a certain repayment amount.

 

Later, as their career or business progresses, they may find themselves capable of taking on higher repayments. Doing so enables them to shorten the term of their loan and lower overall interest repayments.

 

Takeaway: Contributing even a small amount more per repayment can significantly lower your overall home loan. 

 

3. Draw on your property’s equity

What’s home equity? It’s the difference between your property’s market value and the amount left to be paid out on your mortgage. Here’s how it works:

 

  • Kate has a property worth $750,000.
  • She has $350,000 left to pay on her mortgage.
  • $750,000 (market value) - $350,000 (balance owing on home loan) = $400,000
  • This means Kate owns $400,000 in equity on her property.

 

If you’re looking to refinance, this is the amount Kate has access to. This equity may also be used for other investments and life objectives, including renovations, holidays or as a buffer if funds are needed in the future.

 

Take away: Equity can be used to your advantage.

 

4. Go variable or go fixed

If you’re nervous about interest rates going up from where they’re at now, you might want to fix your interest rate. This may give you peace of mind, since no matter where interest rates go, yours will stay the same.  

 

If being flexible and spontaneous with your interest rate is more important to you, then a variable rate may be your calling. Variable rates are often lower than fixed rates, which is appealing to many people too.

 

Take away: Choose a rate that works for your circumstances. Ask a good broker for more information, if you’re not sure which option suits you.

 

5. Streamline your debt

Bundling your debt into one streamlined loan may make regular repayments feel less stressful, but there are some pitfalls to this method. For example, consolidating high interest debts into one loan can extend the term of your loan.

 

If you’re going to roll multiple debts into one, try to pay off the inflated loan as quickly as possible, by making extra repayments (if you can). Otherwise, you may end up paying more in the long term.

 

Take away: Consider the long-term impact of debt consolidation before making a decision. 

 

Need support with refinancing?

 

If you’re looking to refinance but want to make sure you’re making the right decision, we can help. We review where you’re at with your loan and where you want to be, then recommend refinancing solutions that match you. 

 

If refinancing isn’t right for you at the moment, we’ll let you know that too. 

 

Get started now.

 

Financial Advice Disclaimer: This information is general in nature. Mortgage brokers do not provide financial advice. Clients seeking financial advice will be referred to a qualified financial planner.

BLOG