The Very Basic Guide to Home Loan Refinancing
When you refinance a home loan, you pay off your existing home loan using funds from a new loan that better suits your changing financial circumstances. There are now hundreds of different home loans available as the features of home loans constantly expand and evolve to meet borrowers’ needs. Here is some background information that could be useful if you’re wondering what refinancing is all about.
Some reasons to refinance a home loan
People refinance their home loans for quite a few different reasons, but some of the most common objectives include wanting to:
- Use the equity built up in your home. Over recent years housing prices in Australia have risen significantly and for many people their house is now worth much more than the value of their home loan. The equity that has built up in your home is likely to be your biggest financial asset, and by refinancing your home loan you can get access to cash to use for projects like home improvements, financing a business, paying school fees or taking a holiday.
- Save money on home loan repayments or interest. Since the Global Financial Crisis many people are living on reduced incomes and need to take advantage of every opportunity to save money, while others may still earn high incomes but are keen find chances to make the most of the present volatility of financial markets.
- Manage your finances better. Someone who has a number of different accounts – for credit cards, cheques, savings and home loan, for example – can save both money and time by consolidating the various financial commitments into a single loan account.
What’s the refinance process?
Different types of home loan work in different ways. To attain your goal you may choose a refinance loan that helps you to:
- Borrow more. If you want to take advantage of the equity in your home there will be a lot of lenders vying to help you fund your home improvement or other project. You might be surprised and pleased at the amounts you can borrow, but it’s important to keep your borrowing at a level that you can comfortably repay. It’s also prudent to keep borrowing within 80% of the value of your home to avoid the cost of mortgage insurance.
- Pay less interest. To pay less interest in total on your home loan you need to either borrow at a lower interest rate or repay your loan more quickly. Deciding on the best product is a delicate balance: home loans with the lowest rates don’t usually include features that make it easy for you to pay them off quickly, whereas loans with more flexible repayment features that help you to repay your balance faster by allowing more frequent or lump-sum payments tend to have significantly higher interest rates.
- Pay off debts. For lenders a home loan, which is secured by the property, is less risky and so attracts lower interest rates than are charged for a credit card, which is not tied to any asset.People who are paying high interest on unpaid credit card balance can often roll the credit card debt into a new home loan and repay the debt at a much lower interest rate. While this sort of arrangement can reduce the ongoing repayments to a more manageable level, it will cost you more in the long run unless you ensure that the new loan is paid off as quickly as possible.
With this very basic background information on refinance you’re now ready to start comparing the home loan deals available, and with the help of Home Loan Finder you can secure an interest rate on your refinance loan lower than any broker could offer. Read the complete Guide to Refinancing for greater details on how you can save from refinancing your home loan.
Related posts:
- How Mortgage Brokers Can Help with Refinancing
- Debt Refinancing
- Benefits of Refinancing a Home Loan
- Refinancing Interest Rate
- Refinancing Risk
- Refinancing Equity
- Credit Refinancing
- Refinance Real Estate Loan
- Tips for Refinancing Your Home Loan
- Refinance Options
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