Interest rates in Australia are continuing to rise, leaving many homeowners struggling to keep up with monthly mortgage repayments. So much so that some may consider refinancing to help alleviate rising costs. While there can be sizeable benefits, it is not a one-size-fits-all solution. Let’s dive into the pros and cons of refinancing to see if it’s the right solution for you.
What is mortgage refinancing, and why should I consider it?
Refinancing means replacing your mortgage with a new loan better suited to your current situation. Essentially, it’s paying off your existing loan with a new one. Doing so can have several benefits. These include:
- Lower interest rates: With the steep rise of rates over the last 12 months, your current variable rate home loan has likely risen exponentially. But there are still good deals out there, and you may be able to secure a better rate with a different lender.
- Shorter loan term: By making regular repayments on your mortgage, you may have built up equity in your home. You can use this equity to refinance into a shorter-term loan and pay off your mortgage sooner.
- Consolidate debt: Refinancing can help roll any personal loans, car loans, or credit card debt into one home loan. This can help save money by paying one lot of interest that is typically lower than other loans.
- Predictability: Switching from a variable rate to a fixed-rate home loan can help provide more stability and predictability for your monthly repayments.
What are the risks of refinancing?
Refinancing can be a positive option for many homeowners, but it does not come without potential risks and downfalls.
- Short-term expense: It can save you money in the long term but can also be expensive in the short term as it involves closing costs and fees. If you’re selling your home soon, the long-term savings may not be enough to justify the cost of refinancing.
- Longer loan: Refinancing your mortgage may reset the clock on your loan if you haven’t built up sufficient equity. This can potentially lengthen the life of your loan and cost you more in interest in the long run, even with lower monthly repayments.
How do I refinance my mortgage?
If you’re interested in exploring refinancing, the first step would be to contact a mortgage broker. NMC Finance can help you investigate the options and contact lenders offering the best deals.
It’s important to consider the interest rate, loan terms, closing costs, and any fees associated with refinancing when comparing offers. NMC Finance can help identify if the savings over the life of the loan outweigh the costs and ensure the new monthly payments fit within your budget.
Applying for refinance is relatively straightforward and similar to the original loan application. Your mortgage broker will require documents relating to your income, credit score, and the details of your existing mortgage.
All things considered, it can be helpful for many homeowners struggling with rising costs. It can help reduce their interest, monthly payments, and even the life of their loan. But it’s not the best option for all homeowners, so speaking with a qualified mortgage broker and carefully considering the terms of a new loan are crucial.
* This blog is intended for general informational purposes only. For personalised advice tailored to your unique financial situation, please contact NMC Finance.