When you should (and shouldn’t) refinance your home

By Contributor | 08 May 2019

The wide world of home loans is forever changing. Interest rates rise and fall, new features come in to play and add-ons are introduced. Likewise, personal situations change with different jobs and financial shifts as well as new goals and priorities.    

If you can relate, perhaps it’s time to consider refinancing.

Switching your home loan, either to a new lender or with your existing lender, could potentially save you big money with lower interest rates and fees.

It could also cost you more.

Make sure you dig deeper than the advertised interest rate to determine if it’s truly beneficial to refinance your home.

Refinancing comes with costs: sometimes it’s worth it, other times it’s not.

Here’s a breakdown of when you should vs. when you shouldn’t refinance your home.

When you should refinance your home:

You want to access your equity.
If the value of your property has increased, you might want to use the equity for further investment.

Depending on the financial situation, you might be in a good position to invest in another property, or perhaps you wish to upgrade your current property with a renovation or extension.

You got a pay cut.
If you’ve experienced a dramatic change to your finances, it may pay off to reconsider your home loan repayments.

Some people who find themselves no longer able to comfortably meet their mortgage repayments might benefit by refinancing to extend the term and reduce repayments, or switch to a more basic loan with a lower interest rate.

You’ve reached the end of a fixed rate term.
Now is a good time to shop around and see if you can get a more flexible home loan and better interest rate. There are a variety of options available. Do your homework to discover which one will work best for you.

You’re unhappy with your current lender.
Feel like you’ve chosen the wrong lender? If you’ve noticed other lenders offer better terms, interest rates, add-ons and features, weigh up your options to make the switch.

When you shouldn’t refinance your home:

You want to consolidate your debts.
If you have credit card debt, an overwhelming car loan or another type of personal loan, you might be tempted to pay off these high-interest debts with a low-interest mortgage.

It makes sense on paper, however, that this is one of the riskiest refinancing moves homeowners can make.

When you transfer unsecured debt into your home loan, you are putting your house at risk of foreclosure if you fail to meet debt repayments.

While failing to meet credit card or car loan repayments comes with their own harmful consequences, they’re not as destructive as losing your home.

Keep your debts separate and protect your home.

Your current loan is fixed.
Breaking from a fixed rate loan can cost you a hefty fee on top of the discharge fee.

You’re coming to the end of the loan.
If you’re considering selling or you’re almost at the end of your home loan repayments, it’s not worth paying the refinancing fees for such a short period of time.

You’ve discovered a slightly better interest rate.
If you’ve found a better interest rate or extra features with a new lender, you might be tempted to refinance your home. However, it could cost you more in the long run.

Will refinancing save you money? And more importantly, is it worth it? Compare home loans with our advisers at Home Loans Australia, and find out today.

Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.


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