What is Refinancing?
Refinancing means, generally you switch lenders to achieve one or more attributes listed below. This does not mean you cannot refinance with the same lender on certain occasions may be to change the product or even to consolidate debts too. Theoretically, this is where a mortgage broker can be put into test with having access to many lenders on one platform, we can choose the best deal in the market for you.
Key Reasons to refinance
Secure a better interest rate and lower your monthly repayment
One of the key reasons why home owners choose to refinance their loan is to secure a lower interest rate, additional features and reduce their monthly repayments. However, refinancing can come with some costs, so it’s essential to weigh up the savings of refinancing against the expense involved. If your home loan is currently locked in a fixed term, refinancing costs in breaking the fixed term can be costly. They also involved in discharge of your current mortgage and new mortgage registration fees.
Lender to lender refinancing costs can vary. Most lenders offer rebates and cash incentives when you refinance as a “once off” offer so most of the above costs can be covered.
Please talk to one our qualified brokers to understand whether refinancing is the best option for you.
The Total interest paid on your mortgage could be reduced
While it depends on the loan terms, the costs of refinancing and the interest rate that you receive when you refinance, it is still possible for you to pay less in total interest. That said, it is important to be thorough with your calculations of the costs associated with refinancing and calculate your total payments to forge an accurate picture.
You can pay your mortgage off faster
You may find yourself in a situation where you are making significantly more income than you did when you bought your home. Paying more on your mortgage each month is not always allowed according to bank terms, as they are capped annually, so refinancing could be the ideal option for you. Choose a lower term to pay off your mortgage sooner.
Switch between variable/fixed rates
If you’d prefer the certainty that repayments will stay the same for a period of time, you may wish to switch to a fixed rate. Conversely, you may decide you’d like to take advantage of a lower variable rate as you can accept the risk that rates may rise in future.
Access equity in your home
Your home is likely to be one of your most valuable assets, and by harnessing home equity you have the opportunity to build additional wealth or simply achieve personal goals. Find out more about accessing your home’s equity.
Refinancing your home loan can provide you an opportunity to streamline your debt, and potentially reduce the overall interest you’re paying on multiple debts through the process of ‘debt consolidation’. It means folding several high interest debts into one lower rate debt – which could be your home loan – and may reduce your total monthly repayments.
However, it’s important to note that debt consolidation can come with some downsides. It can turn a short-term debt like a personal loan into a long term debt (your mortgage), and that means paying interest on the balance for a much longer period which could cost you more in the long run. For debt consolidation to be truly cost effective, you need to commit to making additional repayments to pay off the enlarged loan as quickly as possible.
How we can help – First Royal broker insight
Moving from a variable rate to a fixed rate, and vice versa, doesn’t always have to involve refinancing. Debt consolidation and equity release too ca be achieved with in the same lender. Your lender may be able to provide this option without the need to switch from one loan to another, however, this is an area where your First Royal mortgage broker can offer valuable insights.
Talk to a Home Loan expert at First Royal Today!