What is refinancing?
Refinancing refers to the process of paying out your current home loan by taking out a new loan (sometimes referred to as ‘loan switching’), either with your existing lender or through a different lender.
Refinancing lets you change your home loan to suit your new circumstances and can often be your ticket to better loan features and lower interest rates.
Home loan refinancing may be used for different reasons, including home renovations, paying off debts (by rolling them into your home loan), obtaining lower interest rates, raising cash for a major purchase, and much more.
One of the key reasons home owners choose to refinance their loan is to reduce their repayments. This can be achieved by switching to a different loan product or lender in order to:
- Secure a lower interest rate
- Establish a longer loan term
- Pay lower fees and charges
- Take advantage of flexible loan features that allow you to manage your money more effectively and/or pay off your mortgage faster.
You may wish to explore a loan that includes:
- Flexible repayments (at no additional cost to help pay off the loan sooner)
- Repayment holiday (a break from repayments or reduced repayments to cover changes in circumstances)
- Offset account
- Redraw facility
- Flexible rate options
- Loan portability
Refinancing your home loan can provide an opportunity to consolidate high-interest debt (such as credit cards and personal loans) in order to reduce monthly repayments and reduce the total interest being paid across the multiple debts.
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.
Refinancing your home loan could also allow you to unlock the equity in your property to build additional wealth or simply achieve personal goals (such as paying for a renovation, funding a holiday or covering a career break).
How do I refinance?
When you take out a new home loan, you use some or all of the funds to pay out your existing loan. The new loan often comes from a different lender, but many people refinance with the lender they’ve been using for years. If you move to a new lender, that lender will take care of paying out your existing loan.
At Fin Fit Lending Solutions, we are here to take care of the legwork so you can sit back and enjoy the financial benefits!
What do I need to consider when refinancing?
When done properly under the right circumstances, loan refinancing can be very beneficial. However, there are drawbacks involved – namely the cost. The reasons for refinancing should be legitimate and the long term savings should definitely outweigh the short-term costs.