The cost-of-living crisis is real, household budgets are under review. Refinancing the home loan can help, but many people think the purpose of refinancing is just to chase a lower interest rate. Not so! Do any of these seven reasons to refinance apply to you?
1. Lower Interest Rate is certainly the number one factor. Having come off a roller coaster ride of home loans down to circa 2% and then back up again, everyone is complaining about high interest rates. Expectation is that rates have peaked now, but that they will not be heading down until late 2024.
Check your rate. Many unsuspecting bank victims have come off a low fixed rate to be now paying too much, believing the publicity of ‘high rates’, and just accepting it.
Chasing lower rates is only sensible if the savings are greater than the cost, but the net benefit is often there. Individual advice is essential, however as a start point – rates below 6% for the home loan are still available. If you are paying more than 6.5%, that is far too high. Ring us for a review!
2. Debt consolidation can bring significant benefit. Personal debt problems are common with credit cards, personal loans, and car loans being a burden. Credit cards with carry forward balances can have interest rates double or even triple the home loan rate. Benefits of refinancing can be substantial, lowering the interest rate and monthly repayment.
3. Lower home loan monthly repayments are sometimes the primary target of a refinance. This can be achieved even without much differential on interest rate, via extension back to a new 30-year term, or by use of interest only periods.
Cash flow savings can often be a primary driver to refinance, however care needs to be taken in analysis, as it can increase the life-of-loan interest expense. Individual advice is recommended.
4. Additional funds required is a fourth reason to refinance. Need some home repairs or renovations? It may be possible to increase your home loan to pay for that new kitchen and still keep the same monthly repayment. All via a clever refinance.
5. Bank products vary within and between different banks. The type of loan you have may not still be the best option. For example, we see many clients begin with a basic no-frill loan as a first home buyer, but as time goes on an offset account may be required. That then starts a whole new process of best option available comparisons, which may or may not lead to a recommendation to refinance.
6. Future planning is essential. A full and happy life has many adventures. Don’t forget to take the home loan into account! If you have major changes in your life coming up, do not wait until the change happens, call us before-hand for review. The easy bookend examples to quote are having children and heading into retirement. In each case, what we can do for you is severely limited after the life changing event has occurred.
7. Bank service is unfortunately another clear and present reason for refinance. Whilst all banks tell us how they value their customers, there will be times when someone just wants to move banks due to bad customer experience.
Refinancing can be of significant benefit for multiple reasons, but cost / benefit analysis does need credit advice tailored to your specific circumstances.
Integrity Finance Australia has been serving the community since 2006. If you have any questions or want to know what your options are with your refinancing or borrowing capacity or your home loan, then please email support@ifafinance.com.au , or call us on 03 9511 8883.