Refinancing your loans – when and why?

When? Whenever it makes financial sense to do so.

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I’m sure you have heard about mortgage refinancing, but what does it really mean? And how does it apply to you? In the past most people who took out a mortgage stayed with it, as written, until they paid it off.  But that is not always the best course of action.

Following the Christmas holidays, people often feel their finances are out of control – just like the poor piggy bank, almost under water – and that can be a trigger to restructure your finances.

Reviewing and refinancing is a sound practice and can help set you up for the future. These days, people refinance their mortgage much more frequently, with the average duration of a home loan in Australia now just five years. Below is an overview of the most common reasons people choose to refinance their home loans. If you’re interested in more detail on any of these, stay tuned for future updates,  call 1300 355 467 or use the contact us form.

lower rate

The most common, and most obvious, reason for people to refinance their mortgage is to get a better deal. Rate is important, but be careful you don’t become too fixated.  When you refinance your home loan, you need to consider account fees and charges, as well as the interest rate, to know the true cost of the loan. It’s also crucial to take into account any exit fees attached to the existing home loan, and the charges associated with taking out a new mortgage. You need to be sure that in refinancing your home loan you’ll be securing yourself a better deal long term, taking into account all of the costs. Having Elkins Finance provide personalised information can help ensure you make it work to your advantage.

more flexibility

Often, when people enter in a mortgage, they don’t know exactly what features they’ll need in the future. It’s only after, when they try to do something and are informed by their lender that they can’t, or in some case that they can’t without incurring a hefty fee, that they discover the full limitations of their home loan.

A common example is the redraw facility –  the ability to pay extra money into a mortgage and then redraw it later. This feature is not available with a basic home loan, so many people refinance their mortgage to give themselves increased flexibility. This can be particularly useful if you are saving, or have cash reserves that will need to drawn upon. Since the interest you pay on your mortgage is usually higher than you can get for your savings account, it can actually save you more in a redraw account than it can earn you.

debt consolidation

At this time of year, many people find themselves swamped with credit card debt and personal loans. Talking to a professional about debt consolidation can help.

Debt consolidation allows you to consolidate your credit card debt and personal loans with your mortgage, which often has a significantly lower interest rate than that applicable to smaller loans. You might also benefit from having a regular, manageable, single repayment.

You do need to be wary of long term costs, and the repercussions of reducing the equity in your home. Having Elkins Finance provide personalised information can help ensure you make it work to your advantage.

financial hardship

Some people find they have borrowed more than they can comfortably repay, leaving them in danger of defaulting. There’s no shame in that, but it’s important not to suffer in silence. If you’re having trouble making your mortgage repayments, get in early and talk to us about refinancing your home loan to make it more manageable.

investment

Over recent years in the property market, houses have appreciated at a significant rate. A home you bought for $300,000 five years ago could be worth $500,000. Refinancing your mortgage can allow you tap into that extra $200,000 equity. You can create a structure that enables you to utilise that equity in your home to buy investment properties or other assets, building your future financial security.

renovation

When you carry out renovations, you can refinance your mortgage and take out a construction loan, which means you only pay interest as building progresses. Once construction is over, you can refinance your home loan again to consolidate the total amount you owe into a loan that minimises your interest bill, while still giving you a degree of liquidity.

Talk about mortgage refinancing with Elkins Finance today.  If you would like to discuss any thoughts this may start, we are based in Melbourne, with offices in Blackburn and Campbellfield, but fully mobile and flexible to suit you. Call 1300 355 467 or use the contact us form to request we contact you.

 

An MFAA Approved Credit Adviser is not your average mortgage broker.