Refinancing your current mortgage can be a strategic way to take your investment goals further – making funds available for other investment opportunities, or to add value to your existing property.
Here are 6 reasons why refinancing your mortgage can help you build wealth:
1. Shorten the term of your home loan
That 30-year mortgage might have been your only option at the time you secured your finance but if you are at least a couple of years into your repayments and have been building equity in your property, negotiating a better deal to trim years off your loan could save you many thousands of dollars.
While interest rates are low, you might discover that the repayments on a 15-year mortgage are within your budget. If you can afford to pay your loan faster, it makes great financial sense.
Take the first step by entering your financial information into an online mortgage calculator. If the figures show that the new payment estimation is possible, talk to your mortgage broker to check the facts and confirm whether bigger repayments over a shorter time-frame are within your reach. By locking down a new loan repayment schedule you’ll be debt-free faster than you imagined was possible.
2. Reduce your interest rate
Interest rates are currently very low and if your home loan was taken out several years ago, you might find that refinancing at a new rate can save you lots of money. Sometimes, you don’t even need to go through the process of re-applying with a new lender. Do some online research to see the best deals that are out there and compare that to what you’re currently getting. Next, ring your lender and tell them about the interest rate you’ve seen at another institution. Sometimes, the threat of taking your mortgage elsewhere is enough for them to offer to match that rate on the spot. To get the best results, engage a mortgage broking specialist to do the negotiation for you. Chances are, a better loan really is out there with another lender. Your mortgage broker can help you file paperwork for a new mortgage that can trim years off your repayments and save you tens of thousands of dollars too.
3. Refinance to switch from a variable rate to a fixed-rate
Making the switch from variable to fixed rate mortgage can be a genuine benefit – especially when interest rates are low. With a fixed rate mortgage in place, budgeting is easier and enables you to plan clearly for future repayments.
4. Refinance to access investment-building equity
Whether you’re starting a new business or adding to your investment property portfolio, refinancing to access equity in your current property can be a smart way to find funds. Talk to your accountant or your financial planner, as well as your mortgage broker, to make sure that refinancing for this purpose is something you can afford – and sustain. If you’re not good with money, adding more debt to your home loan can create a lot of future stress so make sure you’re doing it for the right reasons and that you understand the implications.
5. Refinance To Clear Debts
Refinancing to clear debts is something you should not go into lightly. If the debt is credit card-related, make sure you have a plan – and that you get professional advice from financial professionals.
Adding tens of thousands of dollars to your home loan may seem like a smart way to reduce the overblown interest rates most credit cards offer but if you do not have a strategy to reduce further credit card spending, you will end up in the same trouble with your credit card debt – and have higher repayments on your mortgage to deal with as well.
6. Refinancing To Add Value to Your Property
Accessing cash equity in your property for the purposes of renovating and improving the value of the property can be a smart move – with the right advice. If you’re planning a major renovation, it’s important to understand your intention. If you plan to renovate and sell – talk to a property valuer or local real estate agent to ensure you don’t over-capitalise and invest too much money into a home that won’t get you the return you need. If your renovation plans are more about enhancing your own enjoyment of your property, the decision is more emotional but it is still sensible to be realistic and look at other renovations in the area. You may not want to sell now but who knows what the future will bring? By getting your renovation right now, you can help protect your financial future.
Refinancing does not make sense if:
- You plan to sell the property soon
- Exiting the home loan early attracts penalty payments
- Your income is uncertain
- The balance of your loan is low and you don’t need to re-draw any available equity
Building Wealth Requires Planning
With appropriate research, refinancing your property could be one of the best financial decisions you’ve ever made. Of course, all financial decisions should be entered into with care. If in doubt, talk to financial professionals who can give you the right advice to help you weigh up all the pros and cons of your individual situation.
For more information about refinancing your property, talk to your specialist mortgage brokers in Melbourne, Lending Specialists, today.