When should I consider Refinancing?
There are a few genuine situations whereby you could consider refinancing your borrowings. Here we outline some common circumstances where there is a discernible benefit to you.
Vote with your feet
Lenders have a habit of regularly ramping up the interest rates of existing clients over time and they bank on the fact that most clients don’t have the time or the energy to search for a better deal. So whilst lenders treat their existing loyal clients in this manner, then keeping these lenders accountable by ‘voting with our feet’ in search of a better deal remains a very viable alternative.
Renovations
Many of us love where we live but need more space so undertaking some renovations to solve this issue is commonplace. Given the cost (of renovations) you could consider a restructure / refinance your current home loan to cover these home improvement costs and with the correct advice negotiate a new home loan whereby the new repayments fit into your house-hold budget.
New car purchases
This is another common reason where people ‘review’ their finances. They are looking to upgrade their car but really aren’t keen in either paying cash or taking an expensive personal loan for it. Just as with renovations you could consider refinancing and increasing the loan amount to cover the cost of the new car.
A word of warning though. The asset you are acquiring (the car) is a depreciating asset so you want to repay it within its economic life. Our advice is – let’s calculate the repayments over say 5 to 7 years of the car portion of the loan. Then let’s try and accelerate the repayment of this portion of the home loan so its paid off in that reduced period. This way you’re getting a new car at home loan rates plus its paid off when it might need replacing.
Investment Property purchases
For the majority of people looking to invest into property, their circumstances are such whereby they need to make some adjustments to their current lifestyle to make this investment viable.
With the correct advice you can refinance your current home loan, increase your borrowing capacity (to purchase an investment property), have all the repayments (both the home loan and the new investment loan) at a manageable level to your circumstances and secure an investment that will help secure your financial position for your future.
Tips and traps to consider
A few quick bullet points to consider if Refinancing is on the radar.
- If your current Home Loan is on a Fixed Rate facility get a payout figure first because Fixed Rate loans invariably have ‘Break costs’.
- If you have had your Home or Investment loan for 3 years or more then there is a high likelihood that your bank is charging too much.
- Ask yourself do you really need that Offset account or pay an annual fee – maybe you only need a cost effective Basic Home loan.