- 13 Feb, 2017

When Should You Refinance Your Home Loan?

Refinancing your home loan can be a great way to save money, but you need to time it right. You may decide to refinance as many times as you want, but there is a right way and best time to do it. Knowing precisely when to refinance can help you avoid costly mistakes and will help you save money in the long run.

Find Out If There Is an Early Repayment Penalty

Before you decide when to refinance, you must first recognise that many mortgages have penalty clauses in them, which means that a penalty will be applied if you try to pay off the mortgage early. Be sure to find out the following;

  • If this fee is included in your home loan contract
  • If the penalty is a fixed fee or a percentage of the loan balance
  • How much it will cost.

Because the amount of the fee could be large, it is necessary to examine your contract before proceeding with refinancing. It could end up costing you more than it is worth, which is an indication that now is not the time to refinance.

Consider the Value of Your Home

Over the years, the value of your home may have decreased. While you may have had a lot of equity a year or two ago, you may not have enough now to handle the new loan. For instance, if your home has decreased in value, then:

  • You may no longer have enough equity in it to get a new mortgage.
  • You may need to pay LMI.
  • Your payments could be higher than they were before.

If the above statements are true, you may need to reconsider when to refinance.

Check the Current Interest Rates to Know When to Refinance

Interest rates need to be lower than they are on your current mortgage. Many financial experts recommend that you discover when to refinance:

  • by waiting until the rate is at least a half-percentage point below what you have now.
  • by keeping your eye on interest rate trends.
  • by watching to see when they start to drop, but not waiting for too long.
  • by locking in your rate when it is at the rate you are sure it will be profitable to refinance.

Evaluate How Long You Will Live There

Knowing how long you intend to live in the new property will also help determine when to refinance and still profit. Consider the following about the future:

  • Do you plan to stay at least as long as it will take you to recoup your costs for the new mortgage?
  • Moving before this point will destroy any savings you might have gained.
  • Consider if you intend to have more children and whether or not the house is large enough if you do.

If it is not large enough and more children are desired, then you know that now is not a good time to refinance.

Think About Shortening the Term

Many people think about getting a shorter term on their new mortgage. This often looks attractive and it will help some people because it can:

  • reduce the interest rate.
  • reduce the amount of interest paid over the life of the mortgage.
  • raise the amount which is paid off each month.

When deciding on a time to refinance, couples will need to determine if they can afford the increased cost. If not, it may be best to shelve the plan for the moment.

Determine the Overall Costs and Compare

Before buying into what appears to be an attractive deal on a home loan, take some time to determine the total costs involved. Understanding all of these figures will tell you when to refinance your home and how get a good deal. This means considering:

  • All fees
  • Interest
  • Early repayment penalties
  • Getting a reassessment on the house, and more.

When to refinance? This can only be determined by carefully considering all the details of your situation and comparing the home loan you already have with the other options available. Selecting the right options can enable you not only to know when to refinance but will also let you save thousands of dollars and give you more financial freedom each month with lower payments.


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