If you’re feeling stressed about your financial situation, refinancing your mortgage could be the smartest financial decision you’ll make. Refinancing is simply the process whereby a new loan is taken out to pay off the current mortgage – effectively switching from one lender to another.

Here are four reasons why a mortgage refinance makes sound financial sense:

 1. Flexibility

A home loan generally lasts for a long time, and it’s likely that during the life of the loan, your financial circumstances will change.

With an overwhelming amount of choice out there when it comes to loans, many buyers opt for a basic home loan when first taking out a mortgage, where the focus is on simply paying off the loan with no bells and whistles.

However, after a period of time, you may be in the market for these additional mortgage features, which may include a redraw facility, a variable rate, an offset account, the option to make additional payments without penalty, and much more.

2. Debt Consolidation

Debt consolidation is the process whereby all your loans are rolled into one, and can result in big savings. This is because loans with much higher interest rates, such as credit cards, are added to your home loan, which will have a much lower rate of interest.

Again, make sure you do your research before choosing this option. While slashing your credit card interest rate may seem like a no-brainer, the flipside is that you’re turning a short-term debt into a long-term debt, and are increasing your interest charges.

3. Lower interest rate

This one seems pretty easy – a lower interest rate means paying less interest. Who wouldn’t want that? Not surprisingly, this is one of the most popular reasons for refinancing in Australia. However, before you make the switch, do your homework.

What are the fees involved with changing from one lender to another? How do the ongoing annual fees of each institution compare? In some instances, the costs incurred by making the switch may outweigh any potential savings made from refinancing. If you’ve done the sums and a switch of lenders isn’t adding up, don’t give up, as you may be able to help you negotiate an improved rate with your current lender.

4. Investment

Once you’ve made that first leap onto the property ladder, chances are you won’t want to stop there. The good news is, you can start building your property portfolio while still paying off your first home loan, using equity. The equity of your home is the difference between the value of the property, and the outstanding balance on your mortgage. 

Refinancing your mortgage allows you to tap into your home equity funds, which can in turn be invested into the purchase of a second property, or channeled into another investment option, such as shares.  This refinancing option is known as ‘gearing’, and like the other refinancing options outlined above, does carry some risk. We can give you the information you need to help you decide if gearing is right for you.

www.pulacapital.com.au

 

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