A refinance home loan is one where you replace your current mortgage with a new one, either with the same lender or switching to a new one. You do this to access better deals, such as a better interest rate deal, flexibility in policies, lower repayments, access to cashback, or access to the equity built in your home so far.
Why to Refinance a Home Loan?
For better interest rates: Take advantage of a reduced interest rate, potentially saving thousands of dollars over the life of the loan, which typically lasts 30 years.
Refinance cashback: Some lenders offer a handsome cashback as an added perk to say, a lower interest rate or more flexible policies if you choose to refinance with them. The most common refinance sum offered ranges from $2,000 to $4,000 but can also go up to $10,000.
To change the term of the loan: Through refinancing, you can stretch out your repayment plan to thirty years again, and because you will have already built some equity in your home, the monthly repayments will be lower.
Access to equity: You can use some of the equity you’ve built in your home for renovations, investments, or other financial goals.
Debt consolidation: Refinancing your home loan to consolidate your debt, such as a car loan to your mortgage, is a smart way to pay lower interest rates. You also don’t have to keep tabs on several different bills as you only have to make a single repayment every month.
Why Not to Refinance a Home Loan
High Refinancing Costs: Upfront costs, including application fees, exit fees, legal costs, and possibly Lenders Mortgage Insurance (LMI), can add up and may outweigh the potential savings.
Extending the Loan Term: Refinancing to stretch out the loan term can reduce monthly payments but may also mean paying more interest over the life of the loan.
Impact on Credit Score: Multiple refinancing applications can temporarily lower your credit score. Make sure the benefits outweigh the potential impact on your credit.
Not Staying in the Home Long-Term: If you plan to move within the next few years, the cost of refinancing may not be worth it. The break-even point, where refinancing costs are offset by savings, usually takes a few years to reach.
Risk of Overborrowing: Cash-out refinancing allows you to borrow more against your home equity, but it could lead to increased debt and potentially higher monthly repayments.
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Are you unsure whether to refinance with your existing lender or switch to a new one? Select Loan & Mortgage is here to help! Just fill out our consultation form today, and we will take care of the rest.
