Refinance your loans
Refinancing your home loan to a more competitive rate or a loan with better features could save you significantly over the life of the loan
Refinancing your home loan to a more competitive rate or a loan with better features could save you significantly over the life of the loan
In the past, most people who took out a home loan continued with it until they had paid it off. They didn’t think about switching to another lender, and wouldn’t dream of questioning the rate they were given.
These days, people refinance their mortgage much more frequently. On average, people refinance their home loan every 4-5 years. Here we look at some of the reasons people in Australia refinance their home loan.
The most common reason for people to refinance their home loan is to get a better deal. But be careful you don’t become interest rate-fixated. When you refinance your home loan, you need to consider fees and charges as well as the interest rate. You often have to pay charges for exiting your current home loan, plus charges for taking out the new mortgage. You need to be sure that in refinancing your home loan that you’ll be better off in the long run after taking into account all costs.
If you do manage to get a better rate, make sure you channel the savings you’ve made back into your home loan by making additional repayments. This could save you many years off your loan and significant interest.
Many people only discover the full details about their mortgage when it’s too late. They try to do something and get told by their lender that either they can’t do it, or they will incur a hefty charge if they do. An example is a redraw facility – the ability to pay extra money into a mortgage and then redraw it later. This feature is not possible with a basic home loan, so many people refinance their mortgage to give themselves this sort of increased flexibility.
If you carry out renovations, it often makes sense to refinance your mortgage and take out a construction loan so you only pay interest as building progresses. Once construction is over, it might make sense to refinance your home loan again so that you consolidate the total amount you owe into a loan that minimises your interest bill, while giving you a degree of liquidity.
Over recent years in the property market houses have appreciated at a significant rate. e.g. a home you bought for $300,000 five years ago, might now be worth $500,000. Refinancing your mortgage with a home equity loan might let you tap into that extra $200,000 equity.
Some people find they have borrowed more than they can comfortably repay, and they’re in danger of defaulting. There’s no shame in that. But don’t suffer in silence. If you’re having trouble making your mortgage repayments, talk to Milestone Lending about refinancing your home loan to make it more manageable.
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