Should I refinance?

This depends greatly on your individual situation and what your financial goals are, but as good money management you should revisit this question every few years or if you have any changes in your life. Here are a few questions you need answered before you find the cheap home loans:

  • How long do you expect to own your home?
  • Will you use it as an investment property later on?
  • Which way do you think interest rates are headed?
  • Will increasing or fluctuating interest rates keep you up at night?
  • Do you have debts to consolidate
  • Are you paying for features you don’t need or no longer use

Your answers to these will tell you a lot about whether you should refinance or not. But they don’t tell the whole story. As with so many financial decisions, the devil is in the detail. So let’s keep going.

The benefits of refinancing

Lowering your repayments is simply looking for a lower interest rate. This will make a big difference with larger loans. One word of warning here, be cautious of  ‘honeymoon’ or ‘introductory rate’ home loan offers, these may sound good but can be more expensive in the long run.

Consolidating other higher interest rate debts into your mortgage can have big advantages to your cashflow. By rolling your credit card, personal loan or store cards into your home loan when refinancing you take out a larger amount to refinance but you only have one repayment and it’s generally at a much lower rate.

Using the equity in your home makes more sense than taking out a more expensive personal loan. Using this equity is a great source of funds to renovate your existing property, buy shares or even buy your next investment property. If you use these funds for investment purposes you get the added advantage of that portion of your home loan becomes tax deductible, but as always see a tax professional before making any decision.

Getting a better suited product to better match your lifestyle. One thing we can predict is things don’t stay the same, and you need to keep giving your financial situation a  check up every few years. The loan you took out may not be right loan for you now.

For example you may now require a loan which is more flexible or offers more features, you may be looking to start a property portfolio and your existing mortgage doesn’t have allow you to expand. Refinancing might be one of the best ways to position yourself for financial grow.

Costs of refinancing

Refinancing always costs you money at the start, Possible costs to consider include early repayment fees if your loan is on a fixed interest rate; the application fee a new lender might charge; mortgage registration fee; valuation fees and some charge legal fees. Mortgage insurance, usually payable when you borrow more than 80 percent of the value of your property. But you will not always face all of these costs it varies between lenders.

Conclusion

When considering to refinance a home loan, be sure to do your homework you don’t want to do this every 6 months.

Here’s our checklist for refinancing:

  • Be clear about why you are refinancing
  • Consider using a mortgage broker who has access to a large range of home loans and can do the sums and legwork
  • Know your costs
  • Don’t over commit, can you afford the repayments if the interest rate goes up by 2%
  • Know your break even point; how long it takes to recoup your costs of refinancing based on your monthly savings

Access One have developed a specific Mortgage Report Card designed to show if your paying too much on your home loan? it will reveal all! Compare your current home loan against hundreds of others, and show all the costs in moving your home loan.

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