Learn how refinancing your home loan can help lower interest rates, change loan terms, consolidate debt, or access home equity.
1. Lower Interest Rate
One of the most popular reasons to refinance a home loan is to secure a lower interest rate. Lowering your interest rate can provide several key benefits:
Reduced monthly mortgage payments – A lower rate means less interest is added to each payment, helping to lower the amount due each month.
Long-term interest savings – Over the life of your loan, even a slight reduction in interest can lead to significant savings.
Potential to pay off the loan sooner – If you keep making the same monthly payment but with a lower interest rate, more of your payment goes toward the principal, reducing your loan balance faster.
2. Changing Loan Terms
Refinancing also allows you to change the duration of your loan to better fit your financial goals. You might:
Switch from a 30-year loan to a 15-year loan – Paying off your mortgage faster reduces the total interest paid and allows you to build equity more quickly.
Switch from a 15-year loan to a 30-year loan – This could reduce your monthly repayments, freeing up cash for other priorities, though it increases the amount of interest you’ll pay over time.
3. Accessing Home Equity
A cash-out refinance can help you unlock the equity in your home by borrowing more than your current loan balance. You can use the funds for:
Home improvements and renovations
Purchasing a car or other big-ticket items
Debt consolidation
Investing or other financial ventures
Taking a well-deserved holiday
This option can be particularly attractive if your property has significantly increased in value since you took out your original mortgage.
4. Switching Loan Type
Homeowners often refinance to switch between fixed-rate and variable-rate home loans, depending on financial needs and market conditions:
Fixed-rate loans provide certainty with set payments over time, which can be ideal in a rising rate environment.
Variable-rate loans may offer lower initial rates and flexibility, but payments can increase if interest rates rise.
Choosing the right loan type can help manage financial risk and tailor repayments to match your cash flow.
5. Removing Lenders Mortgage Insurance (LMI)
If you originally took out your loan with a deposit of less than 20%, you may have been required to pay Lenders Mortgage Insurance (LMI). Refinancing can help eliminate this extra cost once you’ve built up sufficient equity in your home. By reaching at least 20% equity through mortgage repayments or property appreciation, you can refinance and potentially remove the LMI requirement, which will save you money over the long term.
6. Consolidating Debt
Many homeowners use refinancing as an opportunity to consolidate high-interest debts, such as credit card balances, personal loans, or car loans, into their home loan. This can provide several advantages:
Lower overall interest rates – Home loan interest rates are typically lower than those for unsecured debts like credit cards.
Simplified repayments – By consolidating multiple debts into one mortgage payment, managing your debt becomes easier.
Potential to save money – Consolidating debt into your mortgage could reduce the total amount of interest you pay, freeing up cash flow for other expenses or savings.
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Is Refinancing Right for You?
Talk with one of our business finance experts who can guide you through the process and help find the best solution tailored to your needs.
Call us on (02) 8313-8400 or request a call back.
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