Pros and Cons of Refinancing: What you need to know
Let’s be honest: for most of us, buying a home is the biggest and most significant financial commitment we’ll ever make. Other than long-term parking at the airport or buying avocados out of season.
Home loans can be complex creatures, there are features and add-ons to consider, not to mention changing interest rates. You’re likely not in the same position you were when you got your current home loan – perhaps your family has expanded, or you’re facing an empty nest. Whatever the change, it presents a good opportunity to review and re-assess and potentially save yourself thousands of dollars over time.
So what is Refinancing?
It’s replacing your current loan with a shiny new one – typically with different features, a lower interest rate and lower fees. One way to do this is by tapping into your home’s equity.
Thrilled you asked! Your home’s equity is the difference between the value of the home and the amount owing on the loan. Equity increases as your property’s value does, or as you pay off more of the loan, or a bit of both.
This equity can be used to help you refinance to a more competitive interest rate on your home loan, but you can also access the money to use for renovations, investment or consolidating debts.
Sounds good! What do I need to be wary of?
Hidden costs such as exit fees from your previous provider, and set up costs for the new loan. Make sure you can still comfortably afford the repayments on your new loan, and if you have any questions, send us an email and we can discuss your options.
Many applications: if you’re checking with multiple lenders, they’ll each request a credit report and that can affect your credit rating.
Lenders Mortgage Insurance: If your new loan means you’re borrowing more than 80% of the value of the home, LMI may be on the table.