Why refinance your home loan?

For previous generations of home owners, taking out a mortgage often meant sticking with the same loan and lender for the full term. Not so these days. In the 12 months ended August 2017 for instance, over 200,000 Australians refinanced their home loan[1]. These sorts of numbers make it logical to ask “why refinance your home loan?” In fact, there can be plenty of reasons why refinancing makes good financial sense. Save with a lower home loan interest rate The home loan market is very competitive, and lenders are constantly vying for your business. However, some may reserve their best deals for new customers. If you’ve had your loan a few years, chances are you could secure a better deal by refinancing.

As a comparison, the difference between 5% and 4% on a loan of $500,000 over 25 years can mean a difference in repayment of $284 per month and interest saved of more than $85,000 over the life of the loan.

Pay your home loan off sooner A lower rate doesn’t just mean savings on the long term cost of your loan. It can also reduce monthly repayments, freeing up extra cash to make additional repayments, and that can be the key to paying off your loan sooner.

Using the above scenario, the difference between 5% and 4% on a loan of $500,000 over 25 years can mean a savings of $284 a month. By using this savings, and making extra repayments to your loan, it can mean you can reduce your home loan by 3 years 10 months and interest saved of $135,211 over the life of the loan.

Access better loan features As our lives change, the sort of loan features we need can alter dramatically. A first home owner for instance may not have much scope initially to grow spare cash, but this can change very quickly, and an offset account can start to hold plenty of appeal as a way of using savings to trim interest costs. Even if your circumstances haven’t changed, it’s worth taking a look to see which innovative features you could take advantage of. Home loans are becoming more flexible all time, and new types of features can be a cue to refinance your loan. Forge ahead with debt consolidation Debt consolidation is the process of folding multiple debts into a single low rate loan – usually your home loan. This can lower the rate you pay across all your debts to provide valuable savings on repayments, and free up extra cash to pay off your loan sooner. Switch between different types of rates Refinancing can be a chance to lock into a competitive fixed rate and enjoy more certain repayments, which makes your loan easier to budget for. Conversely, if a fixed rate term is about to expire, refinancing can let you make the switch back to a more flexible variable rate home loan. Put home equity to work Home equity is the difference between your home’s market value and the balance owing on your loan. It’s money you can access by refinancing your loan, and the available funds can be put to work achieving personal goals like renovating your home, buying a new car, taking a holiday or paying for your children’s education. The key is to consider why you want to refinance and be sure that it’s the right step to achieve your goals. For a obligation free consultation, contact Home Loan Depot here to discuss your financing needs and see how we can help you.