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Refinancing your home loan is one of the best ways to save money and adjust to changing financial and life circumstances.
Here are a few reasons why you should refinance your investment loan in 2022.
Refinance to lock in a fixed rate
With one interest rate hike already under our belts and more on the horizon in 2022, it could be a smart move to refinance to a fixed rate mortgage before rates rise even further.
With a fixed interest rate, you don’t have to worry about interest rate fluctuations during the fixed period because the rate remains the same. This also makes it easier to budget, because you know exactly how much your repayments will be each month or fortnight.
Interest rates on fixed loans have been rising in the last few months, but there are still some competitive rates to be found if you refinance with loans.com.au
Refinance to access equity
When you pay down your mortgage with principal and interest (P&I) repayments, you build up equity in your home. Equity is also impacted by property values. If your property’s value has increased over the last few years, you might be able to refinance and tap into that equity. How much you can borrow will depend on how much of your mortgage you have paid off and how much your home is worth now.
For example, if your property is valued at $700,000 and you have $200,000 left to repay on the mortgage, you would have $500,000 equity in your home. You could use this equity to put towards another investment property, renovations, or anything else you fancy.
Don’t forget though, that the more money you borrow against your equity, the more your loan repayments will increase.
Refinance to consolidate your debts
If you have other debts to repay such as a car loan, credit card or personal loan, you may want to consider debt consolidation. This is where you roll all your other debts into your home loan and repay them all with one monthly repayment.
The interest rate you pay on your mortgage is typically much lower than the interest rate you would pay on a credit card or personal loan. Refinancing to consolidate all of your debts into the one package with a lower interest rate, allows you to streamline your debts and pay them off easily in one repayment.
Refinance to suit your changing life circumstances and finances
Life is full of surprises and there are a number of instances when you could consider refinancing. Your circumstances can be expected to change considerably as you change jobs, have children, and experience financial setbacks or windfalls. All of these events can be triggers to review your major financial commitments, including your home loan.
It's a good idea to review your mortgage to see if it is still suitable for your circumstances and still represents good value.
However, it’s important to keep in mind that refinancing is not for everyone. If you plan on selling your home in the next year or so, then refinancing may not be the best choice. You will likely spend money switching and you won't realise much in the way of savings from refinancing.
If you no longer have a stable source of income or have recently switched jobs that may also affect the decision, because you may not be eligible to refinance at a better rate than the one you currently enjoy.
It’s imperative that you do your research and compare your current home loan to the new loan you’re considering in order to ensure that you really will be better off.
Refinance to get a better interest rate
Another common reason why borrowers refinance is to get a better interest rate. As we already mentioned, we’re about to head into a period of rising interest rates over the next year or two. However, it’s still a good idea to look at what rates other lenders are offering as there may be more competitive rates out there. Keep in mind that variable rates are susceptible to interest rate fluctuations when the Reserve Bank moves rates up or down, or when the lender makes out of cycle rate changes.
There are still competitive interest rates on investment loans to be found. Our rates are super competitive, starting from as low as 2.24% p.a. (2.96% p.a. comparison rate*) for our popular Smart Booster Investor Bundle when you get both an investment and owner-occupied loan with loans.com.au, and from 2.99% p.a. (3.01% p.a. comparison rate*) for our Smart Investor loan. We’re here to help as little or as much as you need, and most importantly, save thousands on your investment loan.
Marie Mortimer is Managing Director of loans.com.au, one of Australia's largest online lenders. Since Marie started the business in 2011, Marie has grown loans.com.au into a company with $6 billion worth of home and car loans. Marie is dedicated to improving financial literacy for all Australians and is passionate about the FinTech industry in Australia. When she isn't at work, she loves to spend time with her husband and two young children.
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