Do you want to reduce your mortgage repayments? Are you ready to make your dreams of owning a holiday home a reality? Refinancing your mortgage may be the answer.
If you’re like many Australians, your mortgage is likely your biggest financial commitment. While it’s great to know you’re building wealth every time you make a repayment, it’s important to think about how your mortgage impacts your overall wealth.
With the current low-rate interest environment, now is a great time to strengthen your finances and take advantage of refinancing. Here’s everything you need to know about refinancing your mortgage.
What is refinancing?
Also called ‘loan switching’, mortgage refinancing is the process of paying out your current mortgage with a new loan. You can pay out your current loan with a new loan from your existing lender or a different lender.
You may choose to refinance for many reasons, but some of the top reasons people refinance their mortgage include:
- to reduce monthly repayments
- the existing fixed rate is expiring
- the current variable rate is expensive
- to provide access to funds for investing
- to pay for renovations
- debt consolidation.
As an example, if your current repayments are too high, you may look into refinancing to reduce your repayments. This will free up money that you can put towards other things, or you can deposit the extra capital into an offset account. An offset account will reduce the interest payable on your mortgage while allowing you to build up liquid wealth.
What are the benefits of refinancing?
Depending on your financial situation, refinancing your mortgage will have a range of benefits. Some of the biggest benefits of refinancing include lower fixed monthly payments, the flexibility to pay off your loan faster, the ability to pay off your other debts as well (credit cards, personal loans and other debts) and accessing the equity in your property to fund your other goals and dreams.
Is mortgage refinancing for me?
It may sound like refinancing is the answer to achieving all of your financial goals, but you need to make sure the numbers stack up to realise the benefits. If you’re thinking of refinancing, consider the following:
- Exit fees: You need to research exit fees you may incur. If the exit fees are high, the cost of refinancing may exceed your potential savings. Exit fees usually apply if you exit in the first 3 to 5 years of your loan term.
- Equity: If you don’t have at least 20% of your property’s value in equity, you’ll be subject to Lender’s Mortgage Insurance, making refinancing less effective.
- Your credit history: Check your credit history for any black marks due to missed repayments on your mortgage or other bills and debts. If you don’t have a strong credit score, you may find it difficult to secure a lower interest rate.
What should I look for in a new loan?
If you’ve looked into the points above, and you think refinancing may be suitable for you, make sure your new loan has the features that will give you added flexibility. Some of these features include flexible repayments, the option of repayment holidays, an offset account, and the option to pay off your loan sooner without penalty.
What should I do if I want to refinance my mortgage?
Your mortgage is likely one of your biggest financial commitments, so it’s important to take the time to research how refinancing could drastically change your repayments and, as a result, your overall financial prosperity.
Contact us today to find out how you can refinance your mortgage to efficiently pay down your debt while realising your financial goals. We’re happy to answer all of your questions.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.