If you've had a home loan for a number of years, it's likely that your needs may have changed. It's also likely that your home loan no longer has the flexibility you desire. If you compare between home loans and find something that better fits your requirements, you can choose to refinance. Refinancing effectively means that you're paying out your existing home loan with a new home loan product. This is an ideal choice for borrowers looking to get a better deal. You can always shop around to see if you can find a better product in the market – especially if you financial situation requires it. Here are 3 instances when refinance may be a good option for borrowers.
When Lenders Increase Their Interest Rates
Sometimes a home loan lender may increase their interest rate higher than what was set by the Reserve Bank of Australia, while other home loan lenders may increase their rates only nominally. Even a small increase in an interest rate can make a huge difference to your loan repayments. If you are looking to lower your interest rate, choosing to refinance with another lender is an ideal choice.
When You Need To Consolidate Your Debts
Another big reason for home loan refinance is when you need to consolidate all your debts into one monthly repayment. If you have several different debts from various institutions like credit cards debts, car loans, personal loans and other high interest loans, then it may make sense to roll these repayments along with your home loan. The main advantage of choosing refinance to consolidate your debts is that a home loan rate is typically lower than other rates – credit cards are known to have especially high interest rates, sometimes double the interest rate of a home loan. By consolidating your debts, you will be able to avail of a lower interest rate on your entire debt – which could potentially save you a lot of money. The amount you save can be used to pay your home loan, so you are debt-free sooner.
When You Need To Spend on Home Improvements
Some home loan borrowers may want to exercise the option of refinance to pay for certain renovations and home improvements that they can't afford on their own. Exercising the refinance option for renovation will help you increase the value of your property – keep in mind that it may also increase the loan term. If you're looking for major renovations, consider redrawing funds from your current home loan – the redraw option enables you to access funds from extra loan payments made over time.
Exercising the refinance makes financial sense in these circumstances – make sure you look around before making a decision. A mortgage broker like Brokerhouse can help you make your refinancing decision.