The Right Ways to Refinance
Not so many years ago it was the norm for someone to own one home, and take on one home loan, in their lifetime: they would take out a mortgage on a family home and reside there for the rest of their life, repaying the loan over several decades. It’s different now, and there is a host of home loan options designed to suit the aspirations of today’s home buyers. If you’ve had a home loan for a while you may be considering refinancing to a loan that better suits your current needs and objectives.
Saving money by a refinance deal
The most common reason for people to refinance is to save money by paying less interest on their home loan. To reduce interest costs you can:
- Get a cheaper interest rate. Your current home loan may have some features that you don’t use, for example it may allow you to pay in lump sums to reduce the balance of the loan. It may be beneficial to take out a more basic loan at a lower rate of interest. By refinancing to a loan with lower interest rate but identical loan amount and loan period you could save significant interest over the length of the loan. But do your sums first – there are costs involved in switching loans, so unless the amount of interest saved outweighs these costs within the first 12-18 months, you won’t benefit much.
- Apply any spare money to your home loan. If you have some spare cash in bank accounts that earns you interest at low rates, you might be better off refinancing to an “all-in-one” loan that combines your home loan, cheque and savings accounts. Any available funds in the combined account can reduce your home loan, so you save on interest by paying off the loan more quickly. But do your calculations carefully because more sophisticated home loan products like “all-in-one” loans tend to have higher interest rates than standard loans.
Managing your money better with a refinance deal
Refinancing can offer you a chance to manage your finances in a way that suits your current needs. Some of the possibilities available are to:
- Reduce your debts. If you’ve been struggling to repay credit card debts that never seem to reduce because of the high rates of interest charged, you could benefit by rolling outstanding debts into your home loan account at a much lower interest rate. For example, if it’s difficult to maintain monthly outgoings of $1000 on home loan repayments plus $250 on credit card repayments you might be able to refinance to a loan with more manageable monthly repayments of $1150. You should plan to pay off the new loan as quickly as possible to avoid paying interest over a long period.
- Stabilise your loan repayments. If your current home loan is at variable interest rates you might find it hard to budget as you can’t predict what your repayments will be. Switching to a fixed-interest loan could help you plan your ongoing spending, particularly if you start your new loan at a time when interest rates are low but trending upward. You need to remember that the security of predictable repayment levels comes at a price: fixed interest rates are generally slightly higher than variable rates. You can’t have it both ways, so you need to be clear whether short term predictability or long term saving is more important to you.
- Raise cash. If house prices in your area have gone up and your home is worth significantly more than you borrowed to buy it, you can draw on the increased equity to raise funds. The cash raised by refinancing could be used for home improvements or to fund other projects such as buying a new car, financing a business venture, or taking a holiday. It’s vital that you borrow only as much as you can afford to repay, rather than the maximum your lender offers. Remember as well that there will be heavy mortgage insurance costs if your new home loan is for more than 80% of your home’s value.
With a few hints in mind about the right ways to refinance your home loan, you can now contact Home Loan Finder as we will be able to show you a range of home loan and refinance options to suit your needs, and we’ll also be able to guarantee you an interest rate lower than you would get from a broker.
Related posts:
- Refinance Real Estate Loan
- Cash Out Mortgage Refinance
- Refinance Options
- Need to Refinance
- How Mortgage Brokers Can Help with Refinancing
- House Mortgage Refinance
- How to Refinance an Existing Mortgage with HSBC
- Interest Only Refinance
- Best Refinance
- No Fee Refinance
Top Home Loans
| Home Loan | Details | Interest Rate (p.a.) | Comp Rate^ (p.a.) | App Fee / Ongoing Fee | Max LVR | Min & Max Borrowing | |
|---|---|---|---|---|---|---|---|
 Loans.com.au - Dream Catcher | A home loan offer with a $0 application fee and one of the lowest available home loan interest rates. | 5.85% | 6.21% | $0 / $375 | 80% | $50,000 / $750,000 |
 
|
 Bankwest Online Home Loan | A low interest rate home loan with a $0 application fee and ongoing maintenance fees. This offer is exclusively available by applying online. | 5.97% | 5.97% | $0 / $0 | 80% | $100,000 / $1,000,000 |
|
 State Custodians Mortgage Company Standard Variable Offset Loan | Awarded Mortgage of the Year 2012 – this multi-award winner features 100% offset and a loyalty 0.25% rate drop after 5 years. | 6.02% | 6.23% | $0 / $345 | 95% | $150,000 / $1,000,000 |
|
 Illawarra Home Loans Bank Beater Home Loan | A low variable rate, beaten down even further by 0.05% p.a. after 5 years. | 6.07% | 6.35% | $0 / $345 | 90% | $250,000 / $1,000,000 |
|
Ask A Question