Refinancing your home loan is merely switching to a new loan. You can refinance your loan with your existing lender or by taking your mortgage to a new lender. The most common reason for refinancing your home loan is to take advantage of lower interest rates or features that suit you better but there are other reasons.
The most obvious reason to switch loans is to take advantage of better interest rates so you could save money on interest payments.
Consider whether to stay with your current lender or whether you can get better interest rates elsewhere. Talk to your current lender about your needs. If they are not willing to help, talk to a home loan specialist at DotCapital about refinancing your home loan. Knowledge is a powerful tool, especially when making a decision to refinance. There are a lot of choices on the market with interest rates at an all-time low. Get advice to make an informed decision.
Better Home Loan Features
Approach your current lender first when looking to add more features. You may want to add a redraw or offset account, or make additional repayments. These can all help you save in interest payments. Different features will be important to borrowers and different stages in their lives. For example:
- First home buyers may want low interest rates, low fees and charges, no early exit charges and ability to make extra repayments;
- young professionals and families may need a redraw facility and portability to save the hassle of applying for a new loan when purchasing a new property;
- middle-aged professionals may need a redraw facility, an offset facility and a line of credit;
- near retirement age may need a line of credit, access to equity in the family home, low interest rates and low fees and charges; and
- retirees may need access to equity in their home, a line of credit and a redraw facility.
Access to Equity
You may have a lot of equity built up in your home and want to use it to purchase other assets or an investment property. The equity in your existing home could be used to pay the 20% deposit and the upfront costs for your new investment property.
Your investment property will earn the rental income which could be used to pay the mortgage repayments, any shortfall between the mortgage repayment and the rental income would be dealt under negative gearing. Other expenses you could claim on your tax returns are management & maintenance costs, borrowing expenses, depreciation and capital works spending.
Consolidation of Other Debts
Debts can too easily creep up on you. Refinancing to consolidate your other debts into a manageable loan is a great option. With a single monthly payment, you can save on fees and reduce the amount of interest you pay.
There is a risk that refinancing short-term debts such as a credit card or a car loan can cost you more by refinancing over the long term. But this risk can be mitigated by creating loan splits (separate account numbers) and by paying out these debts over the specified short-term.
Talk to one of our finance & mortgage brokers who can give you information about all your options.