With the current interest rates at record lows there is a lot of discussion about refinancing. Lets have a look at the benefits and disadvantages to refinancing.
What is Refinancing?
Refinancing involves replacing your current home loan, investment loans or debts with a new debt. Its a strategy that people use to:
- Save interest on their current debt
- Borrow more money for renovating
- Secure better terms or features on their new debt
However, there are costs involved in refinancing and therefore its important to explore all elements of refinancing before deciding if it is beneficial. It’s not only about the new interest rate which is what most people consider. When done correctly refinancing can save you a lot of money.
Reasons to Refinance?
Refinancing ultimately comes down to your financial goals and objectives. Its important that any decision to refinance is in line with your overall goals and objectives. Some reasons to refinance include:
- Reduce Interest Rate – If you have not reviewed your home loan in a few years then you may find that there are savings to be had by changing home loan provider.
- Reduce Monthly Mortgage Repayments – By extending the home loan term you may be able to reduce your monthly mortgage expense. However, this usually involves extending the home loan term and may result in a higher amount of overall interest.
- Unhappy with current lender
- Consolidate Debt – By consolidating all your debt in to one loan you may be able to reduce your monthly debt expense.
- Fund Renovations
- Get features your current loan does not offer – For example, you may not have access to a offset account or redraw which may help reduce your interest payments.
Things to Consider?
There will be costs to refinance and these costs have to still make refinancing beneficial. For example, your existing lender will usually charge a discharge or exit fee and the new lender will usually charge an application fee. Only after taking in to account all these fees can you establish if refinancing is a beneficial strategy.
Another considering is always look at the comparison interest rate and not just the advertised rate. The advertised rate can look very attractive but when you consider all fees, honeymoon rates etc the comparison rate may prove not as attractive.
Regularly reviewing your financial goals and objectives will help you regularly look at your mortgage. We will happily review your mortgage and financial situation to ensure you stay on top of you finances. Please don’t hesitate in contacting us to do a review of if you have any queries.
The information posted is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making a decision.