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Refinancing: what you need to know

Confused about the ins and outs of mortgage refinancing? There are two key considerations when you’re looking at taking the step – why and how. Here, we examine both.

A home loan is generally a long-term proposition, but in some situations it can be suitable to refinance your mortgage. Refinancing involves taking out a new mortgage and using those funds to pay off your existing mortgage. Doing it right could deliver significant financial gains over time.

The two key things you need to know and understand before you go ahead are your reasons for doing it and how to go about it.

Good reasons to consider refinancing

 1. You want a lower interest rate

The loans market is highly competitive and interest rates can vary significantly between lenders, so one of the most common reasons for refinancing is to get a lower rate. This could help you pay off your home loan sooner and save you thousands of dollars over time.

Even if interest rates haven’t fallen since you first took out your loan, you can sometimes access a better rate if your financial situation has improved. This is where a broker can be invaluable; they can help find a better interest rate and advise you of lending facilities that may suit your lifestyle. Rather than moving banks, this could mean renegotiating a better deal with your existing lender.

Keep in mind, however, that not all mortgage products are the same. A mortgage with a lower interest rate may not have all the benefits of your existing loan, so be sure to carefully consider all rates, fees and features.

2. You want to change your loan type

You may want to switch from a variable loan to a fixed loan to lock in a low interest rate with either your existing lender or a new one. Depending on the type of mortgage you have, this may require refinancing into a different product. You might also have to refinance if you want to change to a split loan, which has part variable and part fixed rates.

3. You’d like to access the equity in your home for other uses

As you pay down your mortgage and property values increase, the equity you have in your property builds up and becomes a valuable asset. By refinancing, you can access that equity to generate funds to use in wide variety of situations – to renovate or extend your home, for a deposit on another investment property, or even to invest in shares.

4. Your circumstances have changed

Things change. Perhaps you’ve had a significant rise (or fall) in your income. Refinancing can help to manage your new situation. By taking out a new mortgage (or increasing your limit on the existing one) you may be able to consolidate other debts such as personal loans and credit cards, into one facility, lowering your monthly repayments and saving you interest. If your finances have improved, on the other hand, you may want a different kind of loan product with alternative features, such as a mortgage offset or extra repayment facility to allow you to pay off your mortgage sooner.

Ways to start the Refinance process

You can contact different banks and research online to try and compare different lenders and products yourself, but by far the easiest way to get the process started is to seek the help of a broker. We can compare your current loan to loans available from a large number of lenders taking the hard work out of it for you. We can also make sure that refinancing really is the best option for you, after negotiating with your current lender, to ensure that the benefits outweigh the costs of refinancing. The best part is that in most cases the services of a broker are free*. Get in contact with us so we can help you get the maximum benefit and select a suitable loan product for your needs and circumstances.

*There may be circumstances where a broker may need to charge you a fee. This would be disclosed to you before you enter into any arrangement.

This article provides general information only and may not reflect the publisher’s opinion. None of the authors, the publisher or their employees are liable for any inaccuracies, errors or omissions in the publication or any change to information in the publication. This publication or any part of it may be reproduced only with the publisher’s prior permission. It was prepared without taking into account your objectives, financial situation or needs. Please consult your financial adviser, broker or accountant before acting on information in this publication.



 

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