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Mortgage Refinance: A Good or Bad Move

22 September 2017 No Comment

Deciding whether you will refinance your current home loan or stick with your existing loan is indeed a difficult question but definitely worth answering. In this article, we will help you weigh your options to eventually help you come up with the best option for you and your family.

Having a premium variable home loan that you’ve been paying for years will eventually make you think if you need to start looking at switching loans whether with your current lender or a new lender with a better rate.

Refinancing is starting to gain a spotlight in the mortgage market as both banks and non-bank lenders offer enticing refinance options. They target borrowers who have better understanding of their financial options. And with that, more competitive refinancing options have become available for Aussie borrowers. However, before you make a big decision, you should understand that refinancing has its advantages and disadvantages, so you need to carefully analyse which path will become more profitable and convenient for you.

Here are some cases wherein refinancing seem to be a good move for you:

  1. You are looking for money for major decision – in case you are looking for more money to pay for other things like education for your kids or another property investment then you can consider refinancing.
  2. Lender’s rate is no longer competitive – there is nothing more frustrating than knowing that your lender increases interest rate on your loan so if this is the case then you should definitely look at other loans on the market and see if they have lower rates. Increase in rate of your loan repayment can have a big impact on your budget so instead of ruining your entire budget then you might as well consider refinance option.
  3. You want to change your loan type – another common reason why borrowers decide to refinance is if they wish to change current loan type like from variable home loan to a fixed rate home loan which gives them easier time to budget their money.

Here are cases wherein refinancing seem to be a bad move for you:

  1. Prepayment penalties are high – yes, you may found a lender with lower interest rates but if your current lender will ask you to pay for high penalty fee then it’s just not worth it.
  2. Your credit history has gone bad due to debt – if your credit history happens to take a dive due to credit card debts then finding a better loan term might be difficult for you.
  3. You do not have a stable source of income – you need to consider your source of income too. If you’re currently working as freelance and you’re supporting your family with it then it is not a good time to consider refinancing.

It is very important that you become wise in terms of deciding whether you will refinance or not. You should be clear on your motive and do not make a decision just because you see a lower rate or lower interest fee under a new lender.

It is a good practice to reassess your loan every three years or so and see if there are more flexible option available. To do this, you should compare other home loans to your current loan and see if you will achieve more advantages if you switch. Why three years? Usually, this period allows you to minimise the termination fee charged by most banks or lenders.

 

 

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