Is it time to refinance my home loan?
Have you heard about mortgage refinancing? In the past, most people who took out a mortgage persisted with their lender until they had paid it off. These days, people refinance their mortgage much more frequently.
The average duration of a home loan in Australia now is just 4-5 years. Here we look at some of the reasons why people in Australia refinance their home loan.
Mortgage refinancing reason: lower rate
The most common reason for people to refinance their mortgage is to get a better deal. Be careful that you do not become fixated on just the interest rate, though. When you refinance your home loan, you need to consider fees and charges as well as the interest rate. You often have to pay charges for exiting your current home loan, plus charges for taking out the new mortgage. You need to be sure that in refinancing your home loan, you’ll be better off in the long run after taking into account all the costs involved.
Mortgage refinancing reason: greater flexibility
Many people only discover the full details about their mortgage once it’s too late. They try to do something only to be told by their lender that either they can’t do it, or they will incur a hefty charge if they do. An example is a redraw facility – the ability to pay extra money into a mortgage and then redraw it later. This feature is sometimes not possible with a basic home loan, so many people refinance their mortgage to give themselves this sort of increased flexibility.
Mortgage refinancing reason: renovation
If you carry out renovations, it often makes sense to have your home loan reviewed. It is a good time to refinance your mortgage and either draw on equity or take out a construction loan so that you will only pay interest as the building progresses.
Mortgage refinancing reason: home equity
Over recent years in the property market, houses have appreciated at a significant rate. For example, a home you bought for $600,000 five years ago, may now be worth $1,000,000. Refinancing your mortgage with a home equity loan might let you tap into that extra $400,000 equity.