Obtaining a loan won’t always result in keeping that same mortgage for the length of the loan. Home owners are increasingly looking towards refinancing.
Refinancing your home or investment is becoming an increasingly considered option, and for good reason. With skyrocketing capital growth, many are now looking to use these funds. It is worth considering a refinance every few years to see how it may affect your overall situation.
Here are five reasons why you may consider refinancing:
1) Purchasing another property
Refinancing your property when there is equity in the home can allow you to utilise that portion of money to fund an investment property. Or even to buy a holiday home or property for another purpose. This saves you needing to sell the home or get the funds from elsewhere.
This may be worthwhile if you have been paying off your mortgage with little left over. It also means that you can take advantage by building equity in two properties simultaneously.
2) Funding other ventures
It’s not only property that you may want to consider a refinance for. Renovations to the home itself and even business ventures may be able to be funded through refinancing the property.
If refinancing funds can be used to wisely renovate and increase your property’s value, or possibly to increase the achievable rent if it is an investment property, then it may be a worthwhile consideration. In fact, some prefer to use their redraw facility to use the funds to renovate the home for a subsequent refinance. How you decide to use your funds is down to what is available in the property at the time and what your current home loan allows.
3) To achieve a better rate
When interest rates are low, mortgage holders are wise to consider refinancing to take advantage of them, particularly if they opted for a higher rate unaware that this would become an option.
Keep an eye out for hidden fees and charges for ending your loan period early and the costs of refinancing itself, as these can sometimes outweigh the benefits of a new mortgage.
You may also want to change to a fixed rate at a time that suits you to lock in a steady and low level of repayments. A number of investors regularly consider then when the Reserve Bank, and subsequently the lenders, have been reducing their interest rates.
4) Improvement in financial situation
If you have come into a better paying job and are looking for a shorter loan term then this is also possible. If you find yourself able to repay large chunks, yet your current loan does not allow this, then it may be possible to do so through refinancing.
You may also want some extra facilities with your loan, such as an offset account or line of credit, and refinancing may allow you to obtain these features, particularly if you are now a more attractive prospect to a lender.
5) Facing financial hardship
Have you suddenly found yourself in financial strife? Refinancing may actually be an option to ease some of your stress. You may be able to refinance to use some of the funds to pay down more damaging debt. This can include credit cards with excessively high interest rates and other outlays.
Similarly, you may be able to refinance to a longer loan term. This will, as a result, cause your repayments to be less overall. However, it’s worth remembering that the longer you take to pay off your loan the more interest you pay. Refinancing to a fixed interest rate can also assist with keeping rates low when you’re in uncertain circumstances. However, it may restrict how much you can pay down in the future.
Do remember that refinancing may not always be the best option for you. It is also not the only option available to achieve your aims. Consider getting some financial advice before taking this step. Brokers and online comparison sites may also be able to assist you in determining whether better loan terms may be available for your circumstances.
Ensure you consider the costs of refinancing, your balance and your own situation prior to looking for a new mortgage. If you’re keen to sell soon or your credit history has become poorer during your time of ownership, it may be less certain that you will be able to find a good deal. Similarly, changes in employment may affect your chances of a successful refinance and you should be undertaking a number of checks and balances before going ahead.