10 Reasons Why You Should Refinance

Firstly, refinancing is the process of moving a mortgage facility/loan from an existing lender to a new lender.

Alternatively, in some cases, it may also be restructuring an existing loan with the existing lender.

There are several reasons why you may want to refinance, and we list the 10 reasons why you should refinance below.

1. Review the current interest rate and fees.
   It is important to review you home loan interest rates and fees yearly as the market is constantly changing. The interest rate is the biggest cost component of a loan, so to have a competitive interest rate is vital given that the standard loan term is 30 years. A loan that was competitive may not look as good a year later for example.
2. New to bank versus existing customers.
   With many lenders having a policy to issue lower interest rates to new customers as opposed to existing customers, there is always a better deal around the corner somewhere. Lenders are constantly offering fantastic deals to switch to them including “cash backs”, where the lender pays you cash to move to them. These cash back offers should only be considered I the interest rate is also attractive.
3. Debt consolidation.
   This is one of the most common areas for refinancing to a new lender and means combining various loans to simplify the banking and reduce interest. For example, you may refinance a home loan, personal loan, car loan and credit cards, all into the one facility to potentially save a vast amount of interest. This is because personal loans, credit cards and car loans usually attract a much higher interest rate compared to when refinancing into a home loan, secured by a home.
   One point to note is that although the home loan interest rates are lower, meaning the interest charged will be reduced, if the home loan term is 30 years, it may mean you end up paying more interest over the course of the loan. The key is to have the personal debt on lower loan terms and not over a 30 term like the home loan.
4. Review latest property value and equity.
   The banks generally now price the interest rates based on risk, meaning that the more equity you have, the lower the interest rate they will offer. As you pay your loan down and the value ideally increases over time, the increased equity position should be reviewed to potentially allow lower interest rates.
5. Cash out for future investment.
   Following on from reviewing your equity position, as your property value increases, you can tap into that equity with a loan, to then invest in further property or other investments such as shares for example.
6. Review the loan that suits your needs.
   As your lifestyle and needs change over time, it becomes another reason to refinance. You may take out a more expensive line of credit style facility because it was convenient during a renovation. After the renovation is complete, you can switch back and refinance to a more “standard product” for example.
   Conversely, you may initially go for a loan without an offset account, but as income and savings grow over time, it may warrant reviewing that and changing products to a loan that includes an offset or multiple offset accounts.
7. Improve cash flow.
   This is another very common reason to refinance because by finding a lower interest rate and potentially extending the loan term, it can reduce your repayments and put more funds in your pocket each month.
8. Changing economic climate
   As the economic climate changes, it becomes pertinent to review your loan to determine if the type of facility you have should change. There are times when variable rates are very popular and when the interest rate cycle bottoms, fixed rates can be a great way to lock in low interest rates for longer, saving interest along the way.
9. Lender Policy
   Sometimes, if you want more funding and your existing lender has a policy that you do not meet, you have no option but to change banks to get a deal done. On occasions, it may mean paying more in the short term, with a plan to refinance to lower rates and fees later.
10. Always speak to your broker.
    A mortgage broker has thousands of loans at their fingertips and is a specialist in this field and should always be consulted to provide advice. As of 2023, 70% of all residential home loans are written by mortgage brokers, usually at no cost for the consumer, so consult one today to get the best guidance on refinancing.

Conclusion

As you can see, there are several reasons why you should consider refinancing depending on your situation, so speak to your broker on finding the best solution.