Though getting a home loan approved can be a hassle, managing to clear it is a whole other hurdle. The good news is, there are a few things you can do to help lower the monthly repayments of your home loan and maybe save money in the process. One sure way is to refinance a home loan with your current bank or a new mortgage broker.
Refinancing simply means taking another home loan to replace your existing loan. This can help you get out of a fixed-rate mortgage and into a loan payment plan that works for you.
A refinance gets you better loan features such as lower interest rates and better terms. We suggest that you revisit your home loan as you might be missing out on better ways.
Did you know your debt-to-credit ratio can help reduce your home loan repayments? Check out Soho’s article to see how.
How does refinancing work?
When it comes to refinancing your home loan, be ready to switch lenders if it means getting better terms and interest rates. To kick-start the process, you’ll need to visit the lender you wish to work with and apply for a loan.
One of the biggest reasons why you might want to refinance your mortgage is a change in economic conditions. There are three main types of refinancing options that you can choose to use, and they include:
1. Cash-in refinancing
If you’re having a hard time making your monthly repayments, you can opt for the cash-in refinance when you gain access to money. The lender will offer you a lower loan-to-value ratio to help you make your repayments in small instalments.
2. Term and rate refinancing
In case you want to change the loan term and interest rates of your home loan, this is the way to go. It’s one of the most common refinancing processes used by most homeowners. You can also use this process to convert the type of your loan. You can convert a fixed-rate loan to a variable rate if it offers a better interest rate.
3. Cash-out refinance
Depending on how much equity you have in your property value, you can leverage it to get a larger loan using the cash-out refinancing process. If you need cash for whatever reason, you can withdraw the difference. This normally happens when your collateral asset grows more in value than the loan.
Should you refinance your home loan?
Once, you’ve gone through the process of getting your first home loan, you might wonder why you would do it again. But, there are several great reasons why you should refinance your mortgage. If the economic circumstances such a value ratio differs from when you first took out the home loan. You could also talk to a home lending specialist to figure out how to go about it.
Comparing home loans, break costs, and application fees will help you avoid high-interest debts. Some of the factors why you should consider doing it includes:
Additional loan features
Refinancing will get you a better deal on your home loan by providing you with additional features. These include the ability for you to change the frequency of your home loan repayments and even possibly get an interest rate discount. There’s also the option of getting an offset account.
Debt consolidation
You should also consider refinancing your home loan if you have home equity. With home equity, you can manage to access some extra cash for handling huge expenses such as school fees and home improvements, among others.
Taking a second mortgage can help you in consolidating multiple debts by paying off other personal loans using the extra cash you get from switching home loans.
Lower interest rates
Another reason why you should consider undertaking the refinancing process is to help you pay lower interest rates. Reduced interest rates will go a long way in helping you clear your mortgage quicker. They affect your monthly repayments and end up saving you a decent amount of money.
Changing your type of loan
If you’re in a financial position that doesn’t make you happy with your current home loan, you can easily change it. You can change your loan from a fixed-rate loan to a flexible one based on your circumstances.
Pros and cons of refinancing your home loan
Considering the benefits and disadvantages of refinancing your home loan is always ideal. This goes a long way to ensure that you don’t end up in a tricky financial situation due to hasty decisions. Below are some of the pros and cons of the refinancing process.
Pros
- Lower interest rates
- Shorter repayment terms
- Able to leverage your home equity
- Gives you additional home loan features
Cons
- Paying lenders’ mortgage insurance
- Refinancing fees
- It takes effort and time
Conclusion
With the help of our refinancing guide, we hope you can make a more informed decision on your loan. But feel free to check out our finance section for more guides and tips.
Mortgage refinancing is a very vital decision that you should consider making no matter which state in Australia your home is located in.
Do your research and wait for the right time before refinancing your mortgage to avoid getting yourself into deeper financial trouble.You should also prepare adequately and consult relevant bodies if necessary to ensure you get the best deals.
