Pros and Cons of Refinancing your Home Loan.
With rising interest rates, increased cost of living and banks competing hard to get new home loans I want to share with you some tips when looking to refinance your home loan.
Refinancing your home loan can be a very smart financial move if done for the right reasons and with careful consideration.
In this blog, we'll explore the pros and cons of refinancing your home loan and what you need to consider when moving banks.
Main Benefits of Home Loan Refinancing:
- Lower Interest Rates: We all want a lower interest rate!! One of the most significant advantages of refinancing is the potential to secure a lower interest rate. This can result in substantial long-term savings on your mortgage.
- Lower Monthly Payments: A reduced interest rate can lead to lower monthly mortgage payments, providing more financial flexibility.
- Debt Consolidation: Refinancing can also be an opportunity to consolidate high-interest debts, such as credit card balances, into your mortgage, potentially lowering your overall interest expenses.
- Shorter Loan Terms: You can switch to a shorter loan term when refinancing, which can help you pay off your mortgage faster and save on interest.
- Equity Access: when you refinance your home loan, you will have access to any equity you have paid over the course of your mortgage. If you choose, this could be used for things like re-investing, renovations, taking a holiday, purchasing a new car and much more. However, before you go spending too much of your equity, it’s important to remember that the more equity you have, the better chance you have of getting the very best interest rate you can from your new lender.
Things to consider when Home Loan Refinancing:
- Costs and fees: Refinancing involves potential various fees, including bank application fees, mortgage registration, valuation fees, and bank discharge fees. These expenses can eat into your potential savings, so it's crucial to consider the break-even point. Not all banks charge the same fees, so it is important to do your research on rates and fees.
- Research and Compare: Before switching banks, research different lenders, their terms, and interest rates.
- Loan Term: Decide whether you want to keep the same loan term or change it when refinancing. Consider your financial goals and budget.
- Lenders Mortgage Insurance: If your equity is less than 20% of the property value, your lender may require you to take out Lenders Mortgage Insurance (LMI) when you switch. This protects the lender if you default on your home loan but could end up putting you seriously out of pocket.
- Your credit score: Most people don’t realise that every application for credit goes into their personal credit file. Refinancing your home loan often could impact your credit score which can make it difficult to receive lower interest rates for future applications.
- Customer Service: Research the customer service reputation of the new bank or lender. Good service is essential for a smooth borrowing experience.
By meeting with a Mortgage Broker, they can help you do all the leg work and present you with options to put you in a better financial position. That will save hours of your time!
Refinancing your home loan can be a beneficial financial move if done thoughtfully. While there are pros and cons, careful consideration of your specific situation and goals is crucial. If you decide to switch banks, research, and preparation are key. By following these tips and staying informed, you can make an informed decision about your home loan refinancing journey.
At FinFit we offer complimentary home loan reviews and would love the opportunity to review your home loan.