What is mortgage refinancing and is it worth it?
Have you ever bought something really expensive only to realise a while later there is a better deal – lower price or free upgrade – available? Yep, we’ve all been there.
Mortgage refinancing is when you review and/or renew your home loan by getting a new mortgage to replace your current one. For example, you may have originally borrowed from one lender. Now you’ve found another that offers better terms, so you’re considering changing your mortgage to them.
Why do people refinance their mortgage?
People may refinance their mortgage for a variety of reasons. It’s usually done once they own some equity, such as 20%, in their home.
Most commonly though, you may refinance to:
Lower your interest rates
Reduce your monthly payments
Change your mortgage provider
Acquire cash for large purchases
Advantages of mortgage refinancing
According to the Australian Bureau of Statistics, mortgage refinancing hit a record high in July 2021. Sounds like it has become pretty popular among Australians!
Some advantages of mortgage refinancing include:
Lowering your interest rate to save you money in the long run – win-win!
Using equity in your home to pay for expensive things like renovations, repairs, or investments – who doesn’t want an upgraded bathroom?
Getting better loan features – such as flexible repayment options
Consolidating multiple debts so managing your finances is easier
Reducing your monthly repayments AKA saving money (again!)
Disadvantages of mortgage refinancing
As with all good things, there is also some stuff you need to be aware of when making your decision.
So, before you rush off to refinance, consider the potential disadvantages:
Likely restarting your home loan term – where do you see yourself in 30 years?
Possibly spending more money through increased long-term costs of your repayments
Finding your property valuation is lower than expected due to the fluctuating market
Increasing the repayment periods for any short-term consolidated debts
Risking your home through the transfer of default risk from the consolidated, unsecured loans – do you want to risk losing your home over an unrepaid home theatre set up?
Refinancing fees and costs – remember the fees and costs involved when you got your original home loan?
Ask your home loan specialist for advice
There’s a lot to consider before mortgage refinancing – it’s not the easiest thing to wrangle on your own. If you’ve got any questions about refinancing, I’ve got the answers to help you.
Let’s chat about your options before you decide whether to refinance your mortgage.
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.