The Pros & Cons of Refinancing Your Home

October 11, 2021
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As we continue living in a world of uncertainty, there are more reasons why you might decide to refinance your home. It could be to lower your monthly payments, or perhaps to pay off your home faster. Maybe it’s simply to revisit and rebalance your financial situation. 

Refinancing can be a complicated process, especially if you’re not sure what to expect or understand the process of where to begin. So before you call the bank, let’s first go through everything you need to know. 

Why Should You Refinance?

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To refinance is to pay off an existing loan by replacing it with a new one. This action could have great benefits for your financial position and homeowners do this for various reasons: 

  • To obtain a lower interest rate 
  • To achieve a shorter term for their mortgage 
  • To change from an adjustable-rate mortgage to a fixed rate mortgage (or visa-versa) 
  • To access their home equity funds in a financial emergency, large financial purchase, or debt security or rebalancing

Out of these reasons why a homeowner would consider refinancing their mortgage, the most common is to lower monthly payments. This way you can lower interest rates which reduces the amount of money you will pay monthly. That in turn will decrease the total amount you will owe over the time of the loan. You also have the option of changing the terms from 15 year to 30 years, giving you more time to pay off the debt, which also reduces the monthly costs.

Be selective with the type of mortgage you choose. For example a variable rate mortgage may be attractive in terms of a low interest rate but this changes depending on future conditions. So there’s a risk there of a higher interest rate.

Refinancing on a fixed rate loan would give you an advantage with your mortgage payments. When it comes to debt rebalancing, this is an option heavily considered for homeowners specifically wanting to rebalance their assets and debts. 

How do I know I have the best mortgage for my home?

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Having a mortgage security valuation completed will give you a clear and detailed insight into your property’s value, position, and financial standing. A mortgage valuation in other terms is a type of financial security. Having an expert independent valuer complete this process will be in your best interest both financially and personally.

When you refinance, you are essentially restructuring/taking out a new loan on your property. Ideally, a new loan may come with better terms, depending on various factors to be considered:

  • how much equity you have in the house (the amount of the loan already paid off) 
  • credit score when applying for the new loan 

Seeking out advice would be your best start to help determine where you stand and if the decision will be valuable long term. 

Refinancing Drawbacks

Like most big decisions, refinancing has both positive and negative aspects. 

You need to consider that when you are refinancing your loan, you will incur upfront costs. The different fees all vary according to the lender and may include: 

  • Application fee – if you have decided to move to another lender.
  • Property valuation – you will require this to give you a better understanding of your financial position within the property market.
  • Termination/Break Fee – If you are moving lenders, your current lender may require you to pay a termination fee to cover administration costs to end the contract. Or if you have a fixed rate home loan and are refinancing before the end of the fixed term, you will have to pay a break fee (potential losses the current lender may incur).
  • Settlement fees – paid to the new lender when a new contract for the loan is settled 
  • Mortgage registration fees – charged by the state government to prevent you from selling the property without paying back the lender. 

These costs all depend on the lender and the path which you take to refinance. When assessing all the costs involved to refinance it is best to calculate the total cost of changing lenders rather than comparing the individual fees between the different lenders.

For example: your lender may waive application fees, but they may charge you a higher rate for ongoing fees. Researching and understanding everything needed for a mortgage refinance is vital to determine the best choice for you.

The Bottom Line 

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If you do your research and have acquired all advice and information regarding your property, refinancing should better position you financially. It should result in reduced mortgage payments, shorten the term of your loan, or to help you increase your equity faster. If used correctly, it can be a valuable tool to help bring your debt under control. 

As a savvy homeowner, you are always looking at ways to save money. An independent valuer can help determine your financial situation and all your property related requirements to see if refinancing is for you. 

Ask yourself, how long will I continue living in this home? And with all the costs involved in refinancing, will I be saving in the long term? 

Always consider all your options before making a final decision because at the end of the day, your property is your biggest asset. You want the best outcome both financially and personally on your investment.

And if you’re still on the lookout for a dream property, we can also help you out in that department. Browse our search page to check out some amazing listings available right now. But don’t just stop there, download our app to get the full Soho experience. Just remember to shortlist or swipe left on our listings so we can send you others that better match what you’re looking for.

Kerryn Lee
Kerryn Lee is an API qualified property valuer with upwards of 20 years’ experience working in the Adelaide property market. Her expertise spans over all property types and sizes, and includes specialisation in litigation, compensation, and Family Law Court property valuations. Using this experience, Kerryn has completed valuations on large-scale properties within South Australia valued over $10 million.
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