To refinance or not to refinance

Written by in Investing

Older couple on a swing and looking at one another

If you are considering downsizing your home, finding the funds to pay for retirement homes, looking to reinvest or expand your portfolio, there are a range of considerations after you have looked at a refinance calculator or a home loan calculator.

Look at a home loan calculator

Amortization schedule, mortgage calculator, home loan calculator, whatever you want to call it, this is an important refinance tool and the first step in assessing your refinance options.

A home loan calculator considers the loan amount you wish to borrow, the loan term, interest rate and start date to calculate what your monthly payments would be. An amortization schedule will consider the gradual decrease in the money you owe to your mortgage and factor this into your monthly payments so that you can look at what you would conceivably be paying in five years.

Other tools, such as savings calculator and a budget calculator, can help in fleshing out your 5 and 10 year plans, separating all your costs so that you have a clear picture in your mind of what you can afford.

Borrowing on your equity

As your house increases in value, the difference between this value and what you still owe on your home loan (assuming you are still making mortgage repayments) is called your equity. You can borrow money on this equity and reinvest it in other forms of investment (shares, managed funds) or in the maintenance and renovations for an existing property or as a deposit on an investment property.

Reinvesting in an investment property

Sifting through various home loan interest rates and finding the best home loan rates can send anyone a little bit insane. Just a bit. That’s why a mortgage broker can help find the best home loans and home loan rates to suit your budget.

Be aware that if you are refinancing and reinvesting in a property with your equity or after downsizing, you need to be careful whether you choose to enter an interest only home loan. Your age, the state of the market, your borrowing potential and existing and future cash flow should all factor into the decision. Current mortgage rates are unlikely to remain the same for years on end. You also have the choice of entering a fixed rate mortgage but this runs the risk of interest rates lowering further.

For those over 62, a reverse mortgage allows you to take out regular payments from your mortgage but these generally attract higher interest rates and the debt can rise quickly. They can be effective reinvestment options but should not be relied upon as cash flow for general living costs.

Finally, you may look at an offset mortgage, where your savings are linked to your mortgage so that you only pay interest on your debt (for instance, on a $500,000 loan with $20,000 in savings, you only pay interest on $480,000). They traditionally attracted higher interest rates and fees but digitization to the financial system, and the number of lenders who pass on savings from lower overheads means there is higher competition and lower fees within this option. For those downsizing, this may be an option for paying off a mortgage quicker and an effective refinancing option.

Find out more about using equity in your home or get a free quote from over 40 lenders with View Home Loans.