Should you refinance your home loan?
Life has a way of getting in the way of the best laid plans. Circumstances change, finances fluctuate and extra expenses come along when we least expect them. Refinancing your home loan can be a great option for borrowers whose circumstances may have changed since applying for their existing home loans.
Should you consider refinancing your mortgage?
- If you are struggling to meet your current repayments on your home loan.
- If interest rates were to decrease.
- To access the equity in your current home so you can purchase another property.
- Borrow additional funds for whatever reason such as to renovate the kitchen or to purchase a new car.
- To consolidate your credit card/s and other debts you may have into the one loan.
- Apply for a better mortgage at a lower rate that may offer extra features and flexibility.
The right time to consider refinancing your mortgage is when the difference between the average variable interest rate of the market and your current interest rate is close to 1 percent.
For example, if you took an introductory rate home loan five years ago and now have an outstanding balance of $320,000. If you pay a variable rate of 7.81 percent, your monthly repayments work out to about $2,640. Then if the interest rate remains the same for the entire term, you will pay $633,334 in total.
However, if you switched to the a basic variable rate of 6.80 percent, by refinancing your loan over to this rate you could save almost $200 per month in repayments and nearly $47,280 in interest over the loan term.
If you are considering refinancing your mortgage, see how much you could potentially save by comparing home loans online at RateCity as you might find better deals that you could be missing out on.
- Check the interest rates.
- Look at the term of the loan. The longer the term the more interest you will pay.
- Know the fees and charges. Will you incur a fee if you pay off your home loan early? Are there any legal or application fees?
- Don't refinance your debt just to borrow more and worsen you financial circumstances.
- Be extremely cautious when putting up an asset or you risk losing that if you can't make the repayments.
- Watch out for dodgy mortgage brokers or lenders. Make sure they are thorough and upfront when going through all the fees and charges with you.
Remember if you are thinking about making the switch, you should work out how much it will cost you to break out of your loan. Also find out if your new loan will require any establishment and setup fees. It may be a good idea to consider seeing what else is on the market every 12 months or so to see how your home loan compares.