When would I refinance my Mortgage? Whenever it makes financial sense to do so

Heard about Mortgage Refinancing? In the past, most people who took out a Mortgage persistently continued with it until they had paid it off. These days, people refinance their Mortgage much more frequently. The average duration of a Home Loan in Australia now is just 4-5 years. Here we look at some of the reasons people in Australia refinance their Home Loan.

Lower Rate The most common reason for people to refinance their Mortgage is to get a more competitive deal. But be careful you don’t become interest rate-fixated. When you refinance your Home Loan, you need to consider fees and charges as well as the interest rate. Lenders are becoming more competitive and making it easier for clients to refinance such as lowering or abolishing deferred exit fees and even waiving establishment fees. 

More Flexibility Many people only discover the full details about their Mortgage when it’s too late. They try to do something and get told by their Lender that either they can’t do it, or they will incur fees and charges if they do. An example is a Redraw Facility – the ability to pay extra money into a Mortgage and then redraw it later. This feature is not possible with a Basic Home Loan, so many people refinance their Mortgage to give themselves this sort of increased flexibility.

Renovation If you carry out renovations, it often makes sense to refinance your Mortgage and take out a construction loan so you only pay interest as building progresses. Once construction is over, it might make sense to refinance your Home Loan again so that you consolidate the total amount you owe into a loan that minimises your interest, while giving you a degree of liquidity. 

Accessing Equity Over recent years in the property market houses have appreciated at a significant rate. e.g. a home you bought for $300,000 five years ago, might now be worth $500,000. Refinancing your Mortgage with cash out component might let you tap into that extra $200,000 equity. 

Posted by: Belinda Bonetti


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