7 things to consider before refinancing your home loan

Whether you’re looking to save money, consolidate debt or improve your financial stability, refinancing a home loan is a big decision that can affect your financial future for years to come.

Refinancing your mortgage can offer numerous potential benefits, including lower interest rates, access to equity, consolidation of debt, and more stability in monthly payments.

Yet despite the obvious advantages, Newcastle Permanent Head of Customer Lending, Greg Hooper, says people often avoid refinancing because they assume they won’t be eligible to borrow more money or get a better rate or that the process is arduous.

“A refinance is one of the simplest home loan types available, making it a surprisingly seamless process,” he says.

“It’s also one of the biggest investments you’ll ever make, so it’s important to have confidence in your trusted lender to help you get your home loan paid off quicker.”

Here are seven important things to consider before making a move.

1. Why do you want to refinance your home loan

Knowing your motivations for refinancing can help you determine which type of loan, lender or interest rate will best suit your needs.

Will it help you achieve your financial goals and create stability for you and your family, or are you looking to save cash by lowering your monthly mortgage payment, shortening the loan term, or tapping into your home’s equity for other expenses?

Greg says refinancing is the perfect opportunity to “explore more competitive rates outside of your current institution” and take advantage of any cashback offers or other incentives that may be available with a refinance.

2. The interest rate

With interest rates rising, it’s no wonder many Australians might be looking to get a better deal on their home loan, especially if interest rates have changed significantly since the original mortgage was taken out.

Refinancing offers homeowners the opportunity to secure a lower interest rate, which can reduce monthly mortgage payments, potentially saving thousands over the life of the loan.

Another potential benefit of refinancing is the ability to renegotiate the loan terms, such as switching from a variable-rate to a fixed-rate loan, or a split-rate loan – where you can choose to fix a portion of the loan – providing more stability and predictability for monthly payments.

This can be especially beneficial to homeowners who are already on a tight budget.

3. The loan term

The loan term is the length of time it will take to pay off your mortgage. Shorter loan terms typically come with higher monthly payments but lower overall interest costs, while longer loan terms result in lower monthly payments but higher overall interest costs.

If you’re looking to reduce your interest, refinancing to a shorter loan term could potentially shave thousands of dollars over the life of the loan.

On the other hand, if you’re struggling with rising interest rates, a refinance may allow you to extend the loan term, therefore reducing monthly repayments.

This may provide short-term repayment relief but will add up to more interest paid over the long term, so you’ll need to consider your financial goals and what works best for your budget.

4. Do you want to access equity?

Another benefit of refinancing is the ability to access any equity built up in the property. This can provide a lump sum of cash that can be used for home improvements, paying off debt, or investing.

When using the equity in your home to refinance, Greg says it’s important to remember that this will increase the size of your mortgage and the amount you owe on your home.

Refinancing can have many more benefits than just reducing mortgage repayments. Picture: Getty

“You would also need to ensure your new lender is able to facilitate the increase in additional funds and that your income is sufficient to qualify,” he says.

5. Additional loan features

Refinancing is a great opportunity to consider any additional features you might like with your new loan, such as an offset account, redraw facility or ability to make additional repayments.

“An offset account and/or redraw facility can save you money as you can leave the funds on the loan to reduce the interest being charged,” Greg says.

“All these features can be linked to your internet banking, so you can access the facilities in real-time as needed.”

6. Do you have to switch lenders?

Shopping around for a new loan can be beneficial, but refinancing doesn’t always mean you have to switch lenders.

If you’re happy with the service, it is worthwhile having a conversation with your current lender to find out if they can offer a more competitive rate or another loan product that better suits your financial goals.

“Having your banking conveniently under one roof will save you valuable time, energy, and money as you’ll have a one-stop-shop for all your financial needs,” he says.

Greg says refinancing with the same lender also means you can take advantage of loyalty discounts and incentives.

7. The lender’s reputation

Greg says it’s important to do your research and choose a lender with a good reputation when it comes to a refinance.

“Look for a lender that offers competitive interest rates and has a track record of providing good customer service,” he says.

“Read online reviews and ask for recommendations from friends and family.”

And always work with a financial advisor or a mortgage professional to help you determine if refinancing is right for you and your financial goals.

Article source: Queensland Property Investor

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