Should You Refinance Your Mortgage? - Pearl Financial

Should You Refinance Your Mortgage?

By Shane | Refinancing

Feb 21

So you’re wondering if refinancing your home loan is right for you? Well, the principles behind refinancing are simple. The usual motivation is to get the best deal possible in terms of interest rate and fees. You’re probably looking for more affordable repayments or to pay your loan off sooner. But whatever the reason, if you’re considering moving your loan from one lender to another, you need to make sure that your next home loan ticks all of them.

It needs to be the right loan for you now and in the future, taking into consideration your changing situations. Make sure that you won’t go through this process again in the short-term. Finding that new lender, the right lender for you, involves research… so do your homework.

To begin with, you need to determine what works for you with your current loan and what improvements you want to make. You are all very individual when it comes to what works for you financially. Friends and family are always quick to tell you what works for them but it may not be the right deal for you. So take a closer look at your home loan and make sure you get the loan that suits you.

 

Why Refinance?

But firstly, why refinance? More often than not, it’s to save money on interest. The interest rate is often the number one reason borrowers refinance, particularly these days because many of you are highly-leveraged in terms of the amount you owe. If this is the only reason you’re looking to refinance, then it’s a good idea to approach your current lender to see if there’s anything they can do to help. It may save you time and energy.

Identifying a better rate will come from researching the market, but it’s only part of the equation. You may have the lowest rate in the market, but it may not be the best deal for you if the rest of the package is costly or inflexible.

 

Getting A Better Overall Deal

Getting the right home loan to achieve your goal should be a priority. But you need to set those goals first and match the loan to help you reach them. Other than the interest rate, some other things you may need to consider include low or no monthly or annual fees and the right features.

Some loans come with redraw, offset account, a line of credit and online access. Depending on how you operate your loan and its purpose will determine what features you need. Also, the right amount of flexibility. Additional and lump sum repayments are essential for any variable loan arrangement. It can also be useful to have access to move to a fixed rate or interest only payment option.

 

Other Reasons To Refinance

  • Other reasons to refinance can include preparing for immediate or future projects such as renovating your home. It’s a common practice to combine the need for additional funds to renovate your home with the renovation of your home loan.
  • Creating wealth through investment property. Accessing the equity in your home to purchase an investment property can be an ideal way to grow your wealth over the longer term. It’s important to structure your new loan arrangement effectively and efficiently if this is part of your financial future.
  • Life is full of change. There may be changing circumstances like starting a family, a significant pay increase, or the loss of an income temporarily can prompt a review of your financial situation and perhaps the refinance of your loan.
  • When your credit cards, car loans or personal loans get out of hand, consolidating your debts into your home loan can help you pay those debts off sooner. However, rolling short-term debt into long-term debt can mean you’re paying more over the long term. So make sure you structure your repayments appropriately to maximize the benefit. Remember not to fall into the trap of letting short-term debt get out of control all over again.
  • A quality mortgage broker specialist can make all the difference when it comes to saving you money on interest and paying off that loan sooner. Look for a mortgage broker you can have an ongoing relationship with. One who will look at ways to structure your finances according to your goals and provide you with strategies to achieve them.

 

Refinancing Costs

But before you do anything related to refinancing, you need to understand whether there are any costs involved in withdrawing your current loan arrangement. This cost will be determined by how long you’ve had your current loan and the type of facility you have. You can ask that question first.

There will also be costs in establishing the new loan and these can vary from lender to lender. Whatever you do, remember that when choosing your next home loan, you need to ensure it ticks all of the considerations in relation to interest rates, fees, flexibility, and service. Don’t work hard for your home loan. Let your mortgage broker and your new loan do the work for you.

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About the Author

Shane specialises in helping Gen Y professionals and business owners make an impact by accumulating more assets, generating more income, and having more time to enjoy life. He has a Master of Applied Finance, an MBA, and a Master of Financial Planning. He is also a terrible golfer.

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