Refinancing is the option for you to convert one or more existing debts into one consolidated long-term debt. Essentially it allows you to treat your debts as Playdoh – You still have the same amount of debt, but in different forms, shapes and sizes. Why then would you ever consider refinancing, considering that it’s essentially the same thing?
INTEREST RATES
When you refinance debts, whether they are credit card debts or a home loan, you’ll often be able to change the terms of your current debt, as they are combined together. You may find that, the interest rates that you can end up paying with a refinanced debt is actually lower than what you are currently paying, which is definitely a plus for you.
After all, if you think about it, if refinancing means paying the same amount but with a reduced interest, leading to less stress at the end of every month, and potentially more money back in your pocket – it sounds like a pretty good deal. You may question how refinancing can lead to lower interest rates. It sounds too good to be true! To tell the truth, the markets change very quickly. Sometimes your lender’s rates aren’t staying competitive with the market, and you see your friends with interest rates that are much better than yours. Bank’s will often provide a reduced rate especially at the moment as it is very competitive in order to pick up new business. Are you paying more than you have to? So what do you do? Refinance.
SOLVE YOUR WORST PROBLEMS FIRST
Refinancing allows you to take stock of all your debts and problems, and work on solving the toughest ones before anything else. What this means is that you could use a refinance opportunity to wipe out that credit card debt that is placing a burden of 24% interest on you every month, and get that out of the way in three months instead of nine. Then you can focus on slowly eliminating your home loan at a much more reasonable 5%, which definitely helps you to stretch your dollar.
Essentially, in this case, refinancing allows you to reposition yourself to clear the worst debts first, leaving you in a better position to clear all your debts faster and with less stress and cost.
REFINANCING RE-EVALUATES YOU
Often times when someone is caught up in a pile of debts, it’s not because they chose to get into that situation. Who would do that? When a person is caught up and buried under debts, it can be because the situation slowly spiralled out of control, day by day and month by month, until the person is left out of control and out of money.
Refinancing is like taking a time out to evaluate your financial position. It allows you to restructure your debts and repayments as per your current situation. Had a promotion, lost a job, or came into an inheritance? Refinancing makes sure that however your situation changed, you are now in the best possible position to repay and clear your debts in the most optimal and efficient way possible.
RIDING THE WAVES OF CHANGE
The markets and rates available change from month to month and from year to year. Situations may develop when you see a timely opportunity to switch debts to a fixed rate program that will last for years to come. Currently in Australia the fixed rates are at all-time lows. If you think that a change in rates or repayment is suitable for you, discuss this with a Professional Mortgage Adviser who can determine some options that will suit your own circumstances.
SHAKING OFF THE IMAGE
At the end of the day, refinancing sometimes has this nasty stigma applied to it. However, this is really uncalled for – Refinancing allows people caught in debt to consolidate, take a break, and restructure their debt based on their current situation. Similar to how people change clothes according to the season, refinancing allows people to change repayment procedures according to their life cycle at that time. To look at how refinancing can work for you, check out our loan calculator and contact 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.
