4 Reasons Why People May Refinance Their Mortgage
Times are changing – and so is the way homeowners approach paying off their home loans.
Back in the day, people would usually stay with the same bank for the term of their home loan. Sure, this may be the easier option, but you could end up paying a load more in interest than if you shopped around for a better deal.
There are some benefits with refinancing, so let’s take a look at four reasons why people might refinance their mortgage.
1. To save money
Let’s start with some simple maths.
Higher interest rate = coughing up more money. Lower interest rate = handing over less of your hard earned cash.
So, if you’re able to save money by having a lower interest rate then you could use this extra money to help pay down the principal amount of your mortgage. And this means you might be able to finish paying off your mortgage faster.
Try to think long term – if your mortgage is to be repaid over 30 years, you’re likely to be paying quite a bit in interest. With that in mind, why wouldn’t you look around – or ask your mortgage broker – in case you could find a more competitive interest rate?
2. To find a better – or different type of – interest rate
The news keeps hammering on about record low interest rates and how the rates are probably going to rise. Often, this information may sound a bit ominous for home owners but there is another way of looking at it.
Everyone’s financial situation is different, so there is no one size fits all approach. If you decide to refinance your mortgage, you’re basically getting a new loan product. So, this is your chance to amend parts of it – such as whether you have a fixed or variable interest rate, or even whether you’ll only pay down interest.
If you’re thinking of refinancing your home loan, it’s worth hunting around for different loan products that offer options. For example, an offset account may help to reduce your interest payments and save some cash over time.
Just remember, you don’t have to be stuck with a basic 30 year variable loan. Simply chat to your home loan specialist to find out your options.
3. To access equity
Ahh, equity – a homeowner’s dream!
If you’ve owned your home for a while, then it’s likely increased in value thanks to skyrocketing house prices. So, if you refinance it may be possible to use some of that increased equity towards other things.
You may decide to use the equity as a deposit towards another house – such as an investment property – or to fund renovations of your current house. Being able to access your equity is worth considering and one of the reasons why you should look into refinancing options.
4. To consolidate debt
Debt consolidation – when you pay off multiple debts with a new loan – could be worthwhile depending on your financial situation.
In comparison to credit cards, personal loans, or even car loans, home loans often come with some of the lowest interest rates. If you refinance, it’s an opportunity to consolidate some higher interest debts into one place with a much lower interest rate.
It may be a win-win scenario depending on your financial situation. You could use the equity in your home to help pay out those higher interest debts and save money in the long run, which could go towards paying your home loan.
If you’re wondering if refinancing could be an option for you, get in touch with Pania for some personalised advice.
Disclaimer: This is general information only and is subject to change at any time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.