Top reasons to refinance your home loan
A home loan can be with you for many years. In fact, with most borrowers having a mortgage for around 25 years or more, it’s not surprising that the first home loan you take probably won’t always be the most suitable for your needs.
Life can sometimes be unpredictable, and your financial circumstances are likely to change over time regardless of whether you see it coming or not, so it’s important to ensure your home loan adapts and changes with you. Here’s how you could potentially change the game on your personal or household finances by simply refinancing your loan.
Release equity for important projects
Your equity amount is the difference between the value of your home and the amount you owe on your home loan. So, after years of making regular principal and interest repayments on your loan, you’re likely to have built equity. Aside from your repayments, equity will also increase if the value of your home has risen since taking out your home loan.
By reducing the amount you owe on your home as a proportion of your property’s total value, refinancing can enable you to unlock some of your equity for other uses. For example, an equity release might be used to fund home renovation projects that further increase your property value.
Lower your interest rate and fees
The problem with a ‘set and forget’ approach to your existing home loan is that other lenders could be offering more competitive interest rates and fees without you knowing. By shopping around for a better interest rate and comparing fees across lenders, refinancing could help you save a lot of money over the duration of your loan term.
Change the type of interest rate
There are three types of interest rate; fixed, variable, and split – but the type of interest rate that works best for you could depend on market conditions. And we all know these change. For example, if it looks like interest rates are continuing to rise, you might decide to refinance your home loan with a fixed interest rate, so your finances become more predictable throughout the term of your fixed rate agreement.
On the other hand, refinancing with a variable interest rate might be more suitable if rates look like they are trending downward, or even fluctuating. This is because a variable interest rate means you’ll take the benefit of lower interest rates as soon as they take effect, unlike being on a fixed rate. If you think the benefits of a variable rate would work for you but would like more stability, refinancing with a split rate loan could be the answer, which means part of your loan will be charged fixed interest while the other part will have a variable rate.
Over time, you may become liable for other debt in addition to your home loan such as a car loan, credit card balances, or even a personal loan, but these can become difficult to keep track of – especially with each having different repayment terms, fees and rates.
To streamline your finances, you could choose refinancing as a way to merge all your debts into one, so you have only one repayment to make with your home loan. Importantly, home loan interest rates are generally lower than for other types of debt, so you could save money as well as make life easier.
Change your loan term
Refinancing could be a great opportunity to negotiate a shorter or longer loan term in response to a change in financial circumstances. For example, reducing your loan term with the same interest rate means your repayments will be higher but the total amount of interest you pay over the shorter life of your loan will be less. Meanwhile, negotiating a longer loan term when refinancing means you could benefit from the relief of lowering your regular repayments.
For more information on refinancing your Bluestone home loan, get in touch with us today.