When you initially get a home loan, it probably won’t be the absolute best option for you throughout your time as a homeowner. That’s where refinancing comes into play.
By refinancing your home loan every few years, you can ensure that it continues to match your financial situation and what you need.
Check out these 5 reasons why you might want to think about refinancing your home loan.
1. Secure a lower interest rate
The interest rate you get can make a big difference in what you’re shelling out for your mortgage.
Just a small 0.5% change in rates could mean keeping thousands of dollars in your pocket.
After you’ve held your home loan for a while, you might find yourself facing something like a loyalty fee – this is when your lender charges you more in interest just because you’re an existing customer.
It’s worth checking out what new customers are getting for rates and talking to your lender about bringing your rate down. But if they’re not budging, it might be smarter to look into refinancing with a different lender who has a better rate.
Also, keep an eye out for the moment when your fixed interest period ends and your loan switches over to a higher variable rate – this is what they call a “revert rate”. If you don’t do anything, this is where your loan ends up.
And remember, your home loan is about more than just the interest rate. Another lender might advertise a lower rate, but they might tack on extra fees. Make sure you go over all the details before you jump into refinancing.
2. Accessing your equity
If you’re thinking about tapping into the value you’ve built up in your home, refinancing is the way to go.
Your equity is the chunk of your home that you actually own. You can figure it out by subtracting what’s left on your home loan from the current value of your home.
This equity can come in handy for various things. For instance, you could use it to:
- Cover the costs of sprucing up your home
- Put towards a deposit on an investment property
- Invest in shares or other opportunities
- Make a big purchase, like a car or well deserved vacation
There are a few different ways to set up a home equity loan. I can help you figure out the best approach for accessing your home’s value.
3. Find a better lender
Considering a refinance could be a good move if you’re not quite feeling the love from your current lender.
For instance, you might not be too thrilled about things like:
- Getting less-than-stellar customer service
- Dealing with rigid ways to make payments
- Not having a user-friendly mobile app or in-person options
- Having ethical concerns – like not being on the same page with where your lender puts their money.
If you’re thinking about refinancing due to problems with your lender, remember to look at all the angles of your new loan, not just who the lender is.
4. Changing the type of loan
You can mix things up with your home loan by refinancing and changing the way the interest is set.
Sometimes, the kind of interest rate that worked for you when you first got your home loan doesn’t quite fit your needs anymore.
Maybe you kicked off with a variable interest rate, but now you’re hankering for the predictability of fixed payments.
On the flip side, perhaps you began with a fixed rate, but you’re eyeing those nifty features that usually tag along with variable rate loans.
Or, you might want to embrace both sides of the coin and go for a split rate home loan through refinancing. With a split loan, part of your interest rate is locked in, while the other part rides with the market.
5. Debt consolidation
Opting for a refinance to group all your debts together can be a savvy move if you’re juggling other debts like personal loans, car loans, or credit card balances.
Debt consolidation means rolling your other debts into your home loan. This simplifies things, letting you make just one monthly payment instead of handling multiple bills.
Because home loan interest rates tend to be friendlier than the rates on other kinds of debt, you’ll usually end up with a lower interest rate on your combined debts.