Mortgage refinancing means paying an existing debt and then replacing it with a new one. So why should someone do this? What are the financial advantages of such a move? Let’s find out in today’s article.
- Lower Interest Rate
Mortgage refinancing can have many advantages, one of them being a lower interest rate. A high-interest rate can affect your finances like there is no tomorrow. Combined with big debts and other taxes, an interest rate can quickly transform your credit score into a bad one.
So it’s no wonder why someone would want to replace a high-interest rate with a lower one. It makes sense, and it can be done, especially when the lender’s rates are higher than those of the competition.
Be careful though; this method can cost you a hefty fee. It mainly depends on the bank and whether you want to use a new lender or not.
For this service, you will need to calculate your fees and charges to see if it is worth it in the long run.
- Fixed Rate
Another reason why someone would look into mortgage refinancing is that he/she wants a fixed rate. Maybe a dynamic interest rate just doesn’t cut it anymore for a person’s wallet, so a fixed one would be more appropriate.
- Time Is Money
Mortgage refinancing can also mean changing the loan term, which can happen when interest rates get to a low level.
- Refinancing and Renovating
Many Aussies want to refinance their mortgage to fund their renovations. This can happen if their homes value more than the sum they pay for their loans.
- Debt Consolidation
Mortgage refinancing can also be done to consolidate your debt. Many Australians are doing it by adding a personal loan, a car loan or a credit card debt to their mortgage to take advantage of a lower rate.
This can help them pay off their debt faster, but the shorter term debts they consolidated will be paid off with their mortgage. This can result in decades of payment.
However, this kind of process can turn a short term debt into a long term one that can affect the interest rate and make you lose money in the future. A personal loan debt can start looking like a home loan one.
To avoid such a situation, you will need to make additional repayments to nullify the enlarged loan as quickly as possible.
- Redrawing Fund with Your Home Mortgage
You can refinance your mortgage to have a redraw option to access the resources you’ve left on your home loan.
Drawbacks
Of course, every financial option has its share of disadvantages. Some processes need a fee to be initialised; others can increase the interest rate or make the term of payment longer.
In any case, to avoid most of the negative financial impact, you will need an expert’s advice. Do the necessary research before requesting a mortgage refinance, because, in some cases, you will pay more in the long run.
While mortgage refinancing can be a great answer for extra funds or saving some money on debts or interest rates, it can be devastating to a person’s finance if it’s done wrong. So, always ask a specialist for advice before taking any decision.
At NSW Mortgage Corp, we specialize in mortgage refinancing, helping Australians for over 20 years. Call us on 1300 137 778 for a FREE consultation or enquire with us here: https://www.nswmc.com.au/enquire-now/
