How to save your home from another rate increase



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With six rate rises over the past eight months and four rate rises this year alone, home owners are feeling the pinch after yet another rate hike this month. RateCity looks at why refinancing your mortgage may aid in reducing the financial pressure.

May 10, 2010

If your current home loan is not working for you or your finances are in an unhealthy state then one way to ease the financial stress may be to refinance your mortgage.

How refinancing works
Essentially refinancing is the process of changing your mortgage through taking out a new loan to replace your existing loan. Your existing loan is paid out and you have the option to consolidate other loans so you only have one loan to pay off.

To assist you in deciding if this is the best option for you it’s important to calculate the costs of your current loan against the costs of a new loan by considering the following questions:

  • Are there are any exit fees and how much are they?
  • What is the interest rate?
  • Work out the monthly repayments over the life of the loan.
  • Is the interest a fixed rate or variable rate?
  • Are there are any fees and charges during the life of the loan?
  • Are there are any other available options to reduce your debt?
  • Is any security required under the loan agreement?

Refinancing your existing home loan is not for everyone and like any finance options it comes with its advantages and disadvantages:

Pros
You can often save more on your monthly repayments with a lower interest rate on a new loan. Consider consolidating all of your other existing loans into one so you only have one repayment instead of multiple.

If you have plans to renovate or buy a new car but don’t have the funds, you can apply for a new loan that will allow you to access the equity in your home to do all those things you wished for.

If your current home loan is a variable rate but you want to change it to a fixed rate (or vice versa), now you can consider your choices. Fixed rates make it easier for you to budget as you know exactly how much the repayments are, whereas variable rates change when Reserve Bank of Australia changes the official interest rate. But you can make additional repayments and pay your home loan off sooner.

Cons
Exit fees to withdraw from your existing loan can be costly. Usually if you have had your loan for four years or more there are no fees. Any less than four and you may have to pay up to tens of thousands of dollars.

There may be upfront fees and charges including establishment fees, legal fees, stamp duty and ongoing fees to consider when applying for a new loan. Sometimes this may work out more expensive in the long-term than keeping your existing loan.

If you are looking to refinance your home or if you just want to see if you can get a better deal on your current loan, compare online to find the best low interest home loan rates available.

 

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