The Australian real estate market has been active, to say the least. It is now catching a breath from the breakneck pace and record-breaking prices. These changes, along with the increase in interest rates, suggest that now is the time to refinance your home.
Of course, refinancing a home loan is something based on more than leading economic indicators. However, there are some solid reasons for many homeowners to think about refinancing.
Seven Reasons to Refinance Your Home Loan
1. To Take Advantage of the Recent Price Growth
While the unprecedented rise in home prices has slowed dramatically, prices are expected to continue to grow throughout the year gradually. This means you likely have a change in your loan-to-value ratio (LVR), which can result in a better interest rate on a refinanced loan. Additionally, you are likely to have an increase in the equity you have built in your home. Because interest rates will continue to climb, this is an ideal time for a refinance.
2. To Lock in Your Interest Rate
The fact that interest rates will continue a gradual climb spurred many homeowners to choose to lock in a rate now. Mortgage refinancing is a smart action. Even though the present rates are higher than those several months ago, the idea of setting a fixed rate now makes a good deal of sense.
3. To Consolidate Debt
Opting for debt consolidation is a wise reason to refinance your home. Many homeowners choose this method to eliminate higher interest on other kinds of debt, such as credit card debt. You can save a sizeable amount of money by making various monthly payments into one debt. This is because the rate of your home refinance is the same as the rate for your other debts. An added benefit of debt consolidation is you will only need to concern yourself with a single payment.
4. To Access Equity
Equity is the portion of your home that you own outright. So, if you have a home valued at $500,000 and paid $250,000, you have 50 per cent equity built up in your home. When you refinance and access equity, you can use the money for several things, like:
- Paying Off Other Debt – If you have debt that is incurring interest, use your equity to pay it off and have one less burden and save money by not paying interest.
- Purchase of an Investment Property – Building wealth is a popular reason many homeowners opt to refinance. It makes sense to make your money work for you.
- Funds for Renovations – Renovations are an ideal way for homeowners to find more satisfaction in their houses.
Additionally, some renovations are excellent ways to add to the value of your home. For example, adding an extra bathroom, extending the kitchen, or putting in a pool are all ways to help you enjoy your home and increase the property value when you decide to sell.
5. To Change Lenders
In a competitive real estate market, there is no reason to stay with a lender who fails to meet your expectations, especially if you are working with a top finance company like Quantum Finance Australia.
Often, homeowners believe they are tied to a particular lender for the life of the loan. In reality, borrowers do have options if they are unhappy with their current situation. Homeowners give several reasons for dissatisfaction with their lenders.
Here are the most common reasons people change lenders:
- Poor communication
- High fees
- Ethical reasons (such as dissimilar values)
- Poor customer Service
- Lack of convenience (such as no apps for mobile devices)
- Repayment inflexibility
6. To finance your renovations
Essentially, refinancing could free up cash that you can use to fund your renovations.
The main benefit of funding a renovation this way is that you will end up paying less interest than you would if you instead took out a personal loan, for instance.
Whether you refinance or obtain a personal loan, you will need to be clear regarding how the renovation funds will be spend. Whatever proves more suitable for you, you will need to be upfront about how the renovation funds will be will be spent.
When figuring out how much to spend of renovations, you should set a goal to spend no more than 10% of the median property value.
Here are some other things to keep in mind:
- If you have little equity or your property value has decreased, you will be less likely to receive refinance approval.
- If borrowing over 80% of the property value, you may have to pay for expensive lender’s mortgage insurance (LMI).
7. To increase your loan and take cash out
This is known as a “cash-out refinance”. Essentially, it allows you to access your existing equity to borrow money at a reduced cost which you can then invest.
For example, if you took out a loan of $500,000 and have $400,000 left, then you have $100,000 of equity. You can then refinance $20,000 of equity into your home loan, increasing the total lending amount to $520,000.
How Does Refinancing Work?
Homeowners sometimes put off refinancing because they believe the process is complex. However, if you align with an experienced financial professional, they will do most of the work on your behalf.
Once you have determined that refinancing is right for you, your financial expert will assist in finding the best lender and rates. You then go through the application process, property valuation, and settlement.
Refinancing with Quantum Finance When you are thinking of refinancing, it is in your best interest to contact an experienced financial professional, such as Quantum Finance Australia. Our years of experience in the industry help us assess your options and find the ideal solution for your individual mortgage refinancing needs. Working with Quantum Finance Australia means receiving personalised attention from professionals who understand your mortgage needs.
The material provided here is for informational use only. It is not binding financial or real estate advice and should not be used as a substitute for a personal consultation with a financial expert.