Debbie Shankar - 7 Nov, 2014

Refinancing as a Long-term Commitment

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Your home loan is one of the largest loans you’ll ever have. Over the lifetime of this loan you’ll repay the principal amount you borrowed and a large sum in interest. So it makes sense for you to go in search of the best possible interest rate so that you’ll pay less.

Many of us, however, have a set and forget mindset when it comes to our home loan. We’ll buy a home, take out a mortgage, and then forget about it until we want to sell that home. But over time, everything changes. The home loan we first took out all those years ago may have been perfect back then, but now it’s behind the times and no longer competitive. Rates have dropped considerably over the last 3-years and this means that you may no longer be getting the best home loan deal.

With the Reserve Bank of Australia dropping the official cash rate at a record low of 2.5 percent, lenders are now able to offer you better lending rates. In addition, competition to gain your business has stepped-up, and this means lenders are vying with each other to gain more customers. Therefore many lenders are offering some of the best interest rates ever seen.

Therefore, now for many borrowers is an ideal time to consider refinancing. But, this depends on you and your circumstances. In order to work out whether or not refinancing is a viable option for you, let’s look at refinancing in greater detail.

What’s Refinancing?

When you refinance you take out a new home loan. This loan then pays out your existing home loan and then assumes the remainder of your debt. So you are essentially swapping your old home loan for a new one that can offer you better value.

Why Should I Refinance?

Refinancing allows you to reduce your existing interest rate and to change your home loan interest rate type from variable to fixed, or vice versa.

What’s the Main Reason for Refinancing?

The biggest reason for refinancing is to save on your home loan repayments. By reducing your interest rate or changing your rate type you can save thousands of dollars in interest payments over the term of your loan. This, in turn, can also give you greater cash flow and reduce the number years it takes you to pay off your home.

What Do I Need to Consider Before Refinancing?

Firstly, refinancing needs to be viewed as a long-term commitment. Otherwise you won’t recoup the costs of making a home loan change. Some financial experts will suggest that you need to stay with the same lender for at least 12-months after refinancing to gain any value. But, most will suggest that a 5 to 8-year term will see you make a considerable saving.

You also need to calculate how much it will cost you to exit from your existing home loan, and how much your new loan will cost in application fees and ongoing charges. Always calculate your costs, and then weigh-up how much you’ll save.

Lastly, look for a home loan at a percent or more cheaper than your existing home loan. This will then make the change from one home to the other more viable.

Do you want to know more about refinancing? Then contact eChoice and find the right home loan for YOU.

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