From 1 July 2023, there are changes in support for first home buyers in Australia.…
As the weather grows colder and the days grow shorter, we are reminded that there really is a season for everything. When the seasons of our life change, our objectives also change with them, so it may be a good time to look at whether your goals are aligned with your current situation. There are many different reasons why people consider refinancing as a component of their financial strategy. The obvious time is when their current interest rate on their loan is higher than other falling interest rates. However, there are many other reasons to refinance though that are worth considering.
Reasons to Refinance
- You may want to access some of your home loan to renovate or upgrade your home.
- You may have decided you would like to pay your loan down faster by reducing the loan term. This might mean that you want to refinance from a 30-year mortgage into a 15-year loan, to pay off the loan in half the time. This means higher payments but far less interest being charged. It is interesting in this instance, to calculate the benefits of changing your loan term.
- You could have possibly gained enough home equity to avoid mortgage insurance and would need to refinance to remove that out of the equation.
- Perhaps you would like to change from an adjustable to a fixed-rate loan. With interest rates at a low, it is worth considering making the most of a fixed rate loan while you can. You could potentially have a combination of a fixed and variable loan to enjoy the low interest rates, but also give your loan some flexibility for the future.
- If your objective is to pay less every payment, you might consider refinancing into a loan with a lower interest rate, or perhaps extend the loan term from 15 years to 30 for example.
How Refinancing Works
Your mortgage is what you get from the bank to pay for your home, along with your deposit. That money from the mortgage goes to the seller of the home you have bought. But when you refinance, you are getting a brand-new mortgage and instead of that money going to the seller of the home, that money pays out the old mortgage debt.
You will be required to apply and qualify for the refinanced mortgage, just like you had to with your initial mortgage. You can do all this through your mortgage broker.
Advice Is Crucial
Refinancing works best when you work together with your financial advisor and mortgage broker to ensure the refinancing strategy fits into your financial plan. Do some calculations together to work out if a refinance will save you money and be part of your strategy for financial peace of mind.
For example, if you have been paying down your mortgage for a good ten years, refinancing to a new 30-year loan may reduce your interest rate but will also be adding a lot more unnecessary interest onto your loan. It is important to choose a suitable time-frame to pay off the loan that does not undo any previous hard work. A loan term can make a huge different on what your loan amount looks like in the long run.
For example, a loan of $500,000 at a 2.45% interest rate will end up costing you $206,547 at the end of a 30-year term, with repayments at $1,963. However, if you were to set that same loan to 15 years, at the end of the term you would have paid only $97,994. The repayments are almost double that of the 30-year term loan, but the interest saved is significant.
|30 Year Term
|15 Year Term
This strategy may not be suitable for everyone, but a mortgage broker will help highlight some of these scenarios to help you understand what you want to achieve.
Make Sure the Strategy Fits the Season
It is important to strategise your mortgage just like you would with any other part of your financial strategy, to ensure it meets your needs and objectives. Once your goals are set, it will be easy for you and your mortgage broker to select the right loan product and term. They will consider fees, rates and fine print and do the applying for you to a few different lenders that fit the bill. Once a refinancing lender is chosen, you will have the chance to lock in your interest rate and close on the loan. It may not be as thrilling as the first day you opened the door to your new home, but it may offer you a chance to walk through a new season of life with a better loan rate or term that suits you, or access to finances to make some necessary changes.
Whatever the scenario, refinancing does not have to be complicated. It really is as simple as a phone call and talking with your trusted mortgage broker to discuss your objectives. Get in contact with Watson Mortgages on 02 4038 1623 to speak to a mortgage broker today.
Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Licensing Statement: Credit Representative 525053 is authorised under Australian Credit License 389328