Key Takeaways
- Refinancing is when you take out a new loan to replace your current one to potentially get a lower interest rate and better overall terms.
- Homeowners may want to refinance due to a number of reasons, including changing financial circumstances, market conditions, and more. They may also want to refinance to improve cash flow, reduce monthly repayments, and avoid defaulting.
- When you refinance, you have many options on what to do aside from securing lower interest rates and longer terms. You can also choose to change lenders, loan types, loan features, and more.
- Make the most out of your refinance by knowing your objectives, shopping around, negotiating, and getting the timing right.
If you’re paying off a home loan or an investment loan, refinancing is an option open for you in case your financial situation or objectives change. But what can you do with a home mortgage refinance? There’s a lot more you can do than just secure lower rates and shorter terms. Let’s explore your different refinancing options to help you get the best outcome that aligns with your goals.
Why Refinance?
Refinancing is when you take out a new loan to replace a current one. The ideal would be to secure better terms, rates, and features than your existing loan.
Refinancing can help homeowners…
- Take advantage of market competition between lenders
- Leverage an improved credit score or income to get better rates
- Gain an equity release
- Improve cash flow for better financial management
- Secure capital to invest
- Adjust to major personal or global events
- Reduce monthly loan repayments
- Avoid defaulting
Here’s What You Can Do When You Refinance
When you refinance, you’ll have plenty of options on what to do depending on your needs. Here are some of your refinancing options:
Lower Your Interest Rate
One of the primary reasons for refinancing is to secure a lower interest rate, which can reduce your monthly payments and save you money over the life of the loan.
Shorten the Loan Term
Refinancing to a shorter loan term can help you pay off your debt faster and save on interest payments. This is particularly beneficial if your financial situation has improved.
Extend the Loan Term
If you’re struggling with high monthly payments, you can extend the loan term to reduce the monthly payment amount. Although, this may increase the total interest paid over time. To avoid spending more just to save on monthly payments, carefully calculate the cost of the refinance with our mortgage repayment calculator.
Switch Loan Types
Depending on your financial situation and the current market conditions, you can switch from a variable-rate loan to a fixed-rate loan (or vice versa). You can also choose to fix only a portion of the loan.
Switch Lenders
If your current lender serves your needs adequately, there may be no need to switch lenders. However, if you’re looking for a lender with better services, support, or financial products, refinancing allows you to look for another one that aligns better with your needs and goals.
Change Loan Features
You can choose a loan with different features, such as the ability to make extra repayments without penalties or access to a redraw facility.
Access Equity
Refinancing can allow you to tap into the equity you’ve built up in your property or asset, providing you with funds for other needs, such as a home renovation or other investments.
How to Make The Most Out of Your Refinance
If you play your cards right, you can maximise your refinance and reap plenty of benefits. Here’s what you can do:
- Clarify and Set Your Objectives: Understand exactly why you are refinancing. Whether it’s to lower your monthly payments, shorten your loan term, reduce your interest rates, or free up capital for large expenses, having clear goals will help you choose the right loan terms.
- Choose the Right Time: Timing can significantly impact the benefits of refinancing. Monitor interest rate trends and consider refinancing when rates drop. Also, assess your financial status. Having more income and a strong credit score can secure better terms.
- Read the Fine Print: Be diligent about reading the loan agreement. Understand all the fees, terms, and conditions. Look out for break fees, balloon payments, or any clauses that could pose risks.
- Plan for the Long Term: Consider how the refinancing will affect your long-term financial plans. Ensure that the new loan enhances your ability to invest in growth opportunities and doesn’t just postpone financial challenges.
- Stay Informed: Always keep yourself updated on financial trends and new lending products. Post-refinance, it’s helpful to stay informed about potential changes in the market that might make refinancing advantageous again in the future.
- Seek Professional Advice: Engage with loan experts who can provide expert insights tailored to your specific needs and financial situation. This can ensure that the decision to refinance is well-informed and aligned with your overall goals.
Explore Your Refinancing Options
If you’re considering refinancing an existing home loan, talk to qualified loan experts to learn more about your options and how to ensure maximum benefits for your circumstances.
