Is Refinancing in 2022 a Good Idea?
With interest rates at record lows during recent times, refinancing is on the mind of many curious homeowners – but how can you be sure if it’s a good idea for your property?
Mar 07, 2022
Refinancing involves changing your existing loan for a new one, often with a new bank. There are several reasons people choose to refinance a home loan - it’s an opportunity to refresh your mortgage terms or find a deal that better aligns with your current circumstances.
Refinance to reduce your interest rate
Refinancing provides borrowers an opportunity to lower the interest rate they pay.
As bank rates constantly change, it’s good practice to regularly compare your existing interest rate against others on the market. If it’s been several years since your loan was negotiated, it’s likely there could be a better deal out there for you. If you need assistance, a finance broker can help cross-check your existing rate against the competition.
If you locate a better deal elsewhere, contact your current bank to see if they can match the deal. If not, it’s worth considering refinancing with a new bank, if your existing loan terms permit. Exploring what else is on the market is the easiest way to save money on your repayments.
Refinancing to change your loan terms
As your personal circumstances change over time, you may wish to revise the terms of your loan.
If your income has increased, refinancing with higher minimum repayments could allow you to repay your loan faster, reducing your interest costs over the life of the loan. Equally, if your monthly spending budget has become restricted, refinancing to a longer-term loan or lower interest loan might help improve your cash flow.
As another example; if you were paying LMI on your original loan but now have adequate equity to avoid it, refinancing to a new loan without LMI is a great cost-saving move.
Refinancing to consolidate debt
Debt consolidation involves merging several debts into a single loan, to achieve a better interest rate or simplify payments.
As home loans generally incur lower interest rates than other debts, such as personal loans and credit cards, consolidating these debts into your home loan can be a great way to reduce your overall monthly repayments.
Debt consolidation provides one single set of repayments that are easier to manage; offering a better indication of the date your debts will be fully repaid and giving you more control over your budget.
It’s important to crunch the numbers before consolidating debts. This should factor in interest rates and any cancellation fees involved.
Refinancing to access equity
Equity is the share of your home that you own, compared against the value of your mortgage. As you make repayments to your home loan, or as the value of your property increases, your equity increases too.
If you’ve built up enough equity in your home, it may be possible to cash out on surplus amounts, for personal or business use. This is a useful tool to fund renovations, property purchases, investments, personal expenses or to repay other debts, if required.
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