There are many reasons why people refinance their home loans. Most revolve around either saving money on the interest they pay, gaining better loan features or getting access to a lump sum for renovations or to clear up other debts.
Save money on the interest you pay
Save money and reduce the interest you pay by:
- switching to a loan with a lower variable interest rate
- reducing the risk posed by increasing interest rates and locking in a lower fixed interest rate
- extending your existing fixed rate term, which can range up to ten years
Switch to access more loan features
Your original loan may not have come with additional features that will help you pay off your loan more quickly in the long term, or assist you to have more control over your finances. These may include:
- a linked offset account, which allows you to use your wages and savings to offset the principal you owe, thus reducing the interest you pay
- the flexibility to make free lump sum repayments to pay off your loan more quickly, or to reduce the term of your loan, saving you years of paying interest
- a redraw facility, which allows you to access any additional loan repayments you’ve previously made, which may prove less expensive than other forms of loans in a situation where you suddenly need cash
- the ability to bundle all your financial needs (such as a home loan, credit cards, transaction accounts and insurance) into one package with a single annual administration fee, saving you paying multiple admin fees
Access the equity you’ve built in your home
Your home equity is the difference between what you owe on your mortgage and the current value of your home. This increases as you reduce your loan principal and house prices rise over time. You can use this equity in several ways:
- to consolidate debt (by switching to a larger home loan and using the extra money to pay off credit cards, personal loans, car loans or other debt on which you’re paying a far higher interest rate)
- to gain access to a lump sum for home renovations or extensions (again, by switching to a larger loan and using the additional money to pay for your new bathroom, kitchen or another extension)
- to buy an investment property (if you have plenty of equity in your home, you can use this in place of a deposit to buy an investment property to rent out)
- in place of another deposit (you can use it as security for another major purchase such as a caravan, camper trailer or motor home)
All these benefits and cost savings can be achieved by either switching to another home loan with your existing lender, or by changing your mortgage provider and going with another company.
Talk to your existing lender first – if their answer is no, switch
Talk to your existing lender first about the reasons why you want to switch home loans and ask what fees may be involved and whether they can offer you a better deal.
If their answer is ‘no’, it’s time to start comparing offers in the market to find a different lender. This is where Savvy can help you compare new deals to find one which is just right for you and your changing financial needs.