Refinancing is becoming more popular than ever with interest rates falling to an all-time low.
Many people are saving thousands in their yearly mortgage costs due to refinancing their home loan.
Keep reading to find out if you could save thousands by refinancing your home loan.
There are a few different reasons why people choose to refinance their home loans.
One of the most common reasons for refinancing is to obtain a lower interest rate. Reducing the interest rate, though maybe only a small difference, can reduce the monthly mortgage payments and save thousands of dollars long-term.
Another common reason to refinance is to change the loan term to a shorter period-of-time. For example, it is common for 30-year loan terms to be shortened to a 15-year loan term once interest rates decrease. The reason for shortening a loan term is the longer the loan term, the more interest you’ll pay.
Another reason for refinancing is to change to and from a fixed loan rate to an adjustable-rate. Changing to a fixed loan rate gives a sense of security and consistency for monthly payments.
When Does the Benefits of Refinancing Outweigh the Costs?
There are several factors that determine whether the benefits of refinancing your home outweigh the costs.
Some of these factors include:
- The length of time planned to stay in the house
- The current interest rates
- How long it would take to recoup the closing costs
As for interest rates, the general rule of thumb is if you can reduce your current interest rate by 1%, then you could potentially save enough money for the transition to be financially worth it.
With that being said, you should consider the length of time you plan to stay in that home, as you want to be there long enough to recoup the costs of the refinancing.
Refinancing makes most sense when:
- There are lower interest rates available
- You are struggling to keep up with mortgage payments
- You want to switch to a fixed rate whilst the interest rates are low
Refinancing does NOT make sense when:
- Your property value had decreased
- Your credit score has decreased significantly
- You’ve lost a reliable source of income
- You are considering leaving the property in the near future
How We Can Help
If you are interested in refinancing your home loan, Finance Mutual Australia can help make the process as easy and smooth as possible for you. With over 20 years of experience, we are dedicated to managing our clients applications and keeping them informed every step of the way. Contact us today to see how we can help you.