Should you refinance your home loan?

As interest rates drop to their lowest and banks fight to keep their customers, many homeowners are looking at the possibly of refinancing their loan. Peard Finance General Manager, Warren Littlefair looks at reasons why some are making the switch.

Over the past six months, there has been a significant lift in people refinancing their mortgages and with the current competition in the market place, it is easy to see why. Whether you are looking to refinance for a cheaper rate on your loan or just looking to restructure your current lending, there are definitely some good options available.

Firstly, there are many reasons why people would want or need to refinance their existing mortgages - one of the main reasons being to simply get a better interest rate on their loan. Banks are extremely competitive at the moment and there are some significant savings to be made if you shop around for a “good deal”. Even better, put your mortgage broker to work in finding a better rate than what you are currently paying keeping in mind that even small rate savings have the ability to save you large sums over a longer period of time.

Alternatively, Fixed Rates have been coming down over the past year and we are currently seeing some of the lowest rates in a very long time. There is even word from certain parts of the industry that some fixed rates are the lowest they have ever been! This can be a good option if you are looking to get certainty around your payments for the next couple of years but make sure you are aware of the pitfalls of fixed rate loans such as the possibility of “fixed loan break costs” which can occur if you pay your loan out early.

One of the traditional reasons for refinancing a home loan is to consolidate other debts into the mortgage. These typically involve credit cards, personal loans, or car loans. This can be a good idea on the surface as generally home loan rates are a lot lower than credit card rates, and it can help to make savings on your weekly expenditure as all of your debts are rolled up into the one payment. This method works particularly well from a convenience factor, as you only need to worry about the one payment. However, it is important to be aware that you are effectively extending the term of your home loan and therefore you may end up paying more interest overall.

Renovations are another major reason for choosing to refinance. Many people ‘cash out’ their mortgage to pay for a new pool, new bathroom or even something as simple as new carpets and paint for their property. This means individuals can pay for their renovations now rather than getting a personal loan or paying cash for them.  Whether you are getting the house ready for sale or renovating it for your own use, refinancing has been a very popular way of paying for renovations for many years.

When you are looking at refinancing you need to make sure that you are weighing up the benefits between different lenders. In some cases it may be a better option to restructure your loan with your current lender. In other cases it may be best to shift to a new bank completely.

You need to weigh up which is the best option to suit your needs. Speak to your bank, mortgage broker, or in some cases your accountant, to get some information and then decide on the right option for you. A small investment could possibly see you making some great savings on your current loans in the future.

If you would like to discuss your personal financial circumstances, our Peard Financial Consultants are only a phone call away on 08 9273 8955.