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Mortgage Refinancing

Mortgage Refinancing

Refinancing is where a client obtains a new mortgage often to reduce monthly payments, lower interest rates, take cash out for large purchases or simply to change mortgage companies. Often people refinance when they have equity in their home, which is the difference between the amount owed to the mortgage company and the value of the home.

Whilst there are many advantages to refinancing your home loan, there are also disadvantages and you should consider both before deciding whether refinancing is right for you.

Advantages of Refinancing

• Reduce monthly repayment

• Acquire better loan features

• Use equity in your home to get additional cash

• Save money by paying a lower interest rate

• Allows you to consolidate multiple debts into one repayment

Disadvantages of Refinancing

• If getting cash out this will increase your mortgage repayment and the size of your mortgage and reduce the equity in your home

• May increase or extend the length / term of your mortgage (often resetting to 30 years)

• There may be fees or costs to refinance

• The valuation of your property may come back lower than you expected

• Short term debts consolidated into a refinance are paid out over a longer period of time

• Potentially higher long-term costs of repayment of a loan resulting from extending the loan term

• Default risk on unsecured loans is transferred onto the family home when consolidating debts

Consult a Mortgage Professional

Before making a decision on whether this type of loan is suitable for you it is important for you to consider the above information and discuss the suitability of this loan type with your Mortgage Professional.

This is general information only and is subject to change at any time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.

Fixed vs Variable

Fixed vs Variable

Whilst there is no way to predict what will happen to the economy and interest rates in the future, what is helpful to understand is the advantages and disadvantages of fixed and variable home loans so you can determine which one may suit you.

Advantages

One of the main advantages of a fixed rate home loan is certainty, as it ensures your repayments will not change for a set period of time. This can help you to plan ahead.

Secondly when interest rates are low you can take advantage of fixing at a low rate and retain that rate even if interest rates rise. This in turn could possibly lower the total amount of interest paid over the loan term.

Disadvantages

If you have fixed your home loan and interest rates go down one disadvantage is you will not benefit from the decreases in interest rates.

If you are on a fixed rate and want to switch to a variable rate or want to refinance or sell your property, a disadvantages is you will have to pay a break cost which can be quite high depending on how long you have had the fixed term for.

Another disadvantage is that with a fixed rate there is often restrictions on making additional repayments.

Best of both worlds

You could also consider fixing part of your mortgage so you get the security of a fixed rate home loan and the flexibility of a variable rate at the same time.

Most importantly you need to weigh up your individual circumstances and goals before making any decisions on how to structure your loan.

This is general information only and is subject to change at any time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.