When should I refinance my home loan? Whenever it makes financial sense to do so.
Have you considered refinancing your home loan? In the past, most people who took out a home loan doggedly continued with it until they had paid it off. These days, people refinance their home loans much more frequently. The average duration of a home loan in Australia now is just 4-5 years. Here we look at some of the reasons people in Australia refinance their home loan.
Lower rate
The most common reason for people to refinance their home loan is to get a better deal. But be careful you don’t become interest rate-fixated. When you refinance your home loan, you need to consider fees and charges as well as the interest rate. You often have to pay charges for exiting your current home loan, plus charges for taking out the new home loan. You need to be sure that in refinancing your home loan that you’ll be better off in the long run after taking into account all costs.
To take advantage of market conditions
In an ever changing market, it can sometimes be advantageous to refinance at the right time in the market to take advantage of a lower interest rate, a particular product or an investment opportunity (eg. property or shares, subject to advice from your financial adviser). BMG Financial Services and their partners can assist to make sure it is the right decision for you and your personal circumstances.
Home equity
Over time you may have built up equity in your home, through a combination of principal repayments and / or an increase in the market value of your home. Refinancing may enable you to access this equity for other worthwhile purposes.
Greater flexibility
Many people only discover the full details about their home loan when it’s too late. They try to do something and get told by their lender that either they can’t do it, or they will incur a hefty charge if they do. An example is a redraw facility – the ability to pay extra money into a home loan and then redraw it later. If you can budget and make additional repayments above the set minimum monthly, this may become available as redraw in your home loan for the times you need it most.
Renovation or construction
If you carry out renovations, it often makes sense to refinance your home loan and take out a construction loan so you only pay interest as building progresses and payments for the renovation or construction are progressively made. Once construction is over, it might make sense to refinance, or consolidate, your home loans to simplify your arrangements and potentially receive the benefit of a lower interest rate. You may also have the option to fix all or a portion of the loan at this time which might provide you with some financial security.
Defaulting
Some people find they have borrowed more than they can comfortably repay, and they are in danger of defaulting. There’s no shame in that. But don’t suffer in silence. If you’re having trouble making your home loan repayments, talk to BMG Financial Services about refinancing your home loan to make it more manageable.
> BMG Residential
> A guide to the types of home loans
> Steps in the loan process
> How do I pay my home loan off sooner?
