For Brisbane homeowners who have bought property in the past few years, you may be wondering if it is too early to refinance your home loan. Are you experiencing what feels like interest rate rise after rise each month this year? An experienced mortgage broker can help you with a home loan health check to see if a refinance will benefit you.
Savvy homeowners will keep a mortgage broker on hand throughout the life of their loan to ensure they are always taking advantage of any savings and opportunities to build wealth for the future. Read on for 10 benefits on why you might consider to refinance your home loan this year.
What does it mean to refinance a home loan, and how does it help those under ‘mortgage stress’?
Refinancing a home loan refers to the process of replacing an existing mortgage with a new loan, typically from a different lender. The new loan is used to pay off the remaining balance of the original loan, and it often comes with new terms, interest rates, and repayment options.
Mortgage stress, on the other hand, occurs when homeowners struggle to meet their mortgage repayments, leading to financial hardship and potential risk of default. Refinancing can be a potential solution for individuals facing mortgage stress, for reasons we have identified below.
Top 10 Benefits Of Refinancing
Why refinance? A lot of Australian homeowners have made the big switch of refinancing their home loans either with their current lender or to a new one. With the country inching closer to the peak of the cash rate tightening cycle (cash rate is at 4.1% at time of publishing), many are left to question the competitiveness of their current home loan rates, wondering if there are lower rates available.
1. To pay less on your mortgage repayments
Refinancing can often reduce what you pay each repayment cycle – and this is probably the number one reason why people consider refinancing. Everyone would like to save money on their home loan repayments – since they usually account for around 30% of our income every month.
Accessing a better rate can not only reduce your home loan repayments, but just a slight drop in interest rates could also potentially save you thousands of dollars over the life of your loan.
2. To extend or remodel your home
If your family is growing and you need a few more bedrooms or a bit of extra space, buying a bigger house is not always achievable. Many people refinance their home loan to access funds to extend and remodel their existing home, rather than go through all the upheaval of buying and selling and moving properties.
Renovating, remodeling, and extending is a great way to get the home you want. What’s more, it can potentially increase your home’s value at the same time. So even though you may be taking out some of the equity you have in your home to do the extensions, the resulting increase in the value of the home could potentially increase your equity again and help you to recoup some of the costs.
3. To consolidate debts
We often talk about the difference between types of debt. A home loan is considered a ‘good’ type of debt because it carries a relatively low-interest rate and can be used to build wealth. Other types of debt can be viewed as ‘bad’ because very high-interest rates can trap you into continually paying interest instead of paying off your debt. These debts are usually things like credit cards – which can often carry an interest rate of 20% pa or more, car loans, store credit, and so on.
Refinancing could allow you to access funds to pay off these expensive debts once and for all. By rolling all your debts into your home loan, you will be paying them off at a lower interest rate. You could also save yourself money every month on interest payments, simplify your situation by only having one payment to make, and beat the interest trap of credit cards and other expensive forms of credit.
4. To access the equity for other purposes
The equity you build up in your property is a valuable asset. We mentioned earlier that a mortgage is a ‘good’ form of debt because it can be used to help build wealth for your future. That’s because your equity increases as you pay down your mortgage and property values go up – and this can potentially give you access to funds you would not have had if you did not have a mortgage.
That means your mortgage really can be used to facilitate your lifestyle and build wealth for your future. By refinancing, you could access your equity and use the funds for anything from education costs or purchasing a new car to financing a holiday or supporting your adult children in purchasing their own home. A mortgage broker specialising in refinancing can help you understand what is available for you and your available equity. Book in a time to chat to the NBHL team today.
5. To fix your interest rate or switch to a different mortgage product
Switching to a fixed interest rate loan, (or a different type of loan that offers additional benefits) is another popular reason for refinancing a home loan. As time goes by, your needs can change and it could be that another mortgage product like a fixed interest rate loan would be more beneficial for you. The number one benefit of a fixed interest rate mortgage is that your mortgage repayments will remain the same for the length of the fixed term – usually 1, 3, or 5 years. This can give you more peace of mind because it makes it much easier to plan your budget for that time period.
There are also many other mortgage products on the market that may have more beneficial features than the home loan you have now. For example, redraw facilities or a mortgage offset account. If your current home loan simply doesn’t offer you the flexibility you need, then, by all means, talk to us about some alternatives.
Read: 5 Tips to know before locking in a new interest rate
6. To change loan terms
Refinancing provides an opportunity to modify the terms of your home loan to better align with your financial goals and circumstances. One common reason to change loan terms is to adjust the loan’s duration. You can choose to shorten the loan term, typically resulting in higher monthly repayments but allowing you to pay off the mortgage faster. This can save you a significant amount of money in interest over the life of the loan and help you become debt-free sooner.
On the other hand, you may opt for a longer loan term to reduce your monthly repayments, providing you with more financial flexibility and freeing up cash flow for other purposes. However, we strongly advise you consider the overall costs and implications of extending the loan term with the help of a mortgage broker, as it may result in paying more interest over time.
7. To remove a co-borrower
There are various reasons why you might want to remove a co-borrower, such as a change in personal circumstances or financial independence. For example, if you initially obtained the loan with a partner or family member, and the relationship or financial arrangements have changed, refinancing allows you to remove their name from the loan agreement. This can provide you with sole ownership of the property and the associated mortgage.
When you opt for a home loan refinance to remove a co-borrower, remember that it may involve satisfying certain requirements, such as meeting income and credit criteria on your own. Additionally, there may be costs associated with the refinancing process, including application fees, valuation fees, and legal fees. It’s advisable to consult with a mortgage broker or financial adviser to understand the implications and requirements of removing a co-borrower before proceeding with refinancing.
8. To take advantage of refinance cash back offers
Taking advantage of refinance cashback offers from a different lender can provide immediate financial relief or be used for various purposes. The cash can help cover the costs associated with refinancing, such as application fees, legal fees, or valuation fees. It can also be used to pay down existing debts, make home improvements or renovations, or contribute to savings or investment goals. Additionally, the cashback amount can act as an incentive to refinance with a lender offering a more competitive interest rate or better loan features.
When considering refinance cashback offers, carefully evaluate the overall cost-benefit analysis. Assess the long-term savings, interest rates, and loan features offered by the lender. Comparing multiple lenders and their respective cashback offers can help you make an informed decision. It’s advisable to consider the overall suitability of the loan, including factors such as interest rates, loan terms, ongoing fees, and customer service, in addition to the cashback offer itself.
9. To accommodate changes in financial circumstances
Life is full of changes, and your financial circumstances may evolve over time. Refinancing provides a means to adapt your home loan to these changes. For example, having a significant increase in income allows you to repay your loan more aggressively and reduce the overall interest paid. Refinancing can help you negotiate better loan terms or access a lower interest rate that reflects your improved financial position.
Alternatively, if you encounter financial challenges such as a job loss or a decrease in income, refinancing can help ease the burden by restructuring your loan. This may involve extending the loan term to lower your monthly repayments or exploring options for financial hardship assistance provided by some lenders. Refinancing can also consolidate your debts, allowing you to manage them more effectively and potentially reduce overall interest costs.
Moreover, changes in personal circumstances such as starting a family, sending children to school, or planning for retirement may require adjustments to your home loan. Refinancing your home loan can help you access funds for life events and major expenses, such as education costs, home renovations, or medical bills.
10. To build wealth
One way to leverage refinancing for wealth creation is by accessing the equity in your property. Equity refers to the difference between the market value of your property and the outstanding balance on your home loan. As you make repayments and property values increase, your equity grows.
By refinancing, you can tap into this equity and use it for investment purposes. For example, you might use the funds to purchase an investment property, invest in stocks or other assets, or start a business. This can diversify your investment portfolio and potentially generate additional income or capital gains over time. Additionally, refinancing to a loan with lower fees or better loan terms can improve cash flow and contribute to your overall financial well-being.
It’s important to approach wealth-building strategies through refinancing with careful consideration and guidance from a financial adviser or mortgage broker.
How to refinance your home loan? Ask us at North Brisbane Home Loans
North Brisbane Home Loans has more than 90 years’ combined experience and can provide expert advice on your options for refinancing home loans in Brisbane. Contact our NBHL team and we will be in touch soon.Please complete the contact form if you have any questions or requests regarding our refinance mortgage broker services, or if you wish to talk to our North Brisbane mortgage brokers for other financial solutions you can book an appointment with us.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
