Lower interest rates have the potential to impact positively on your monthly mortgage payments, saving you thousands per year. This allows you to build equity and perhaps even pay off your home loan more swiftly.
But before you decide to refinance, it’s essential to understand how the process works and to evaluate the pros and cons of your situation.
Classic Finance founder, Nancy Youssef, sat down with Your Investment Property editor Sarah Megginson to discuss why refinancing isn’t always a wise move.
Benefits and potential letdowns of refinancing
One popular reason to refinance are to be able to save by accessing lower interest rates.
Reducing the interest rate helps you save money and also increase the rate at which you build equity in your home.
Even a saving of just 0.25% can shave hundreds, perhaps even thousands, of dollars off your loan.
“We see people refinancing when their property values have gone up, so they look at tapping into some of the equity, and we call that cashout,” Youssef explains.
“That money that they tap into can be used towards other investment purchases or other personal reasons that they need the equity.”
Another common reason for refinancing is to consolidate debt and change mortgage plans.
Replacing high-interest debt with a low-interest mortgage is an excellent financial move. This way, you could consolidate all of your high interest debts into one monthly repayment.
If you are able to pay an additional amount on top of your monthly mortgage amount, that will help you pay the loan off as swiftly as possible.
Refinancing can be an excellent way to save on mortgage interest, but you need to be aware of the potential costs involved. For this reason, it’s a good idea to speak with an experienced mortgage broker to discuss your options and work out the best plan going forward.