As a home owner with a mortgage, chances are you’ve heard of the term 'refinancing'. Refinancing involves reviewing your current mortgage, and potentially swapping your loan to another lender who can better meet your current needs, wants and circumstances.

Refinancing can also allow you to consolidate your debts or pay down your mortgage more quickly.

Another common reason borrowers look to refinance is so that they can access equity – the amount you'd get from selling your home after settling any associated loans, such as a mortgage on that property, and any other costs associated with the property. Depending on that amount, you may be able to access equity in the property without having to sell it, for example, to make home renovations or to buy an investment property.

However, refinancing is not suited to everyone. There are many different factors you will need to consider when thinking about refinancing a loan. Before you initiate an application to refinance, your broker will need to assess your needs and objectives as well as your current financial situation.

So how will you know that refinancing is the right option for you?

The first step is to speak to a professional, such as a mortgage broker, about your needs and whether you can afford a different loan structure or other change to your mortgage, particularly if you have more than one property.

Reduce your monthly mortgage repayments

Let’s say you have $500,000 owing on a 30-year home loan paying 4.20% per annum.

You’re currently paying $2,445 a month in mortgage repayments.

Using the home loan repayment calculator, if you were able to refinance to a rate of 3.59% p.a., you would lower your monthly payments to $2,270.

This will save you $63,000 over the life of your home loan.

You’ll then be able to put these savings into an offset account to further reduce your interest bill or, better yet, make extra loan repayments to reduce your principal debt.

Reduce your mortgage balance

By refinancing to a sharper interest rate, you’re reducing your overall interest bill and, therefore, your total home loan balance.

It also means that your loan amount compared to the current value of your property (LVR) will be even lower than before you refinanced.

This puts you in a powerful position as a borrower and a homeowner for two reasons:

  • You can release equity a lot sooner than if you continued to pay your current interest rate.
  • You can maximise your return on investment should you decide to sell the property.

Release equity to achieve your financial goals

The sharper your interest rate, the lower your overall loan balance and the more equity you available to release.

This opens up a world of property investment opportunities because you can use that equity as a property deposit.

You can even:

  • Fund the cost of renovations.
  • Fund the purchase of vacant land for future construction.
  • Cash out, depending on the amount and purpose, such as going on a holiday or purchase a family car.

Consolidate high-interest debt into a low-interest home loan

Debts getting out of hand?

Do something about it now and avoid heartache like signing a Part 9 debt agreement.

You can refinance to consolidate your debts into one cheaper monthly mortgage repayment.

Save thousands and pay off your debts faster then if you were to continue to try and manage multiple payments at once.

You can consolidate many different types of high-interest debt facilities including:

  • Credit cards.
  • Personal loans.
  • Car loans.
  • ATO debts.

Save your home if your mortgage is in arrears

Major life events such as injury, illness, job loss or the death of a love one can prevent you from meeting your financial commitments.

Refinancing is a solution that can actually save people from losing their homes if their mortgage is in arrears.

Usually, you’ll refinance to a specialist lender (sometimes referred to as a non-conforming lender) for 1 to 2 years.

Some specialist lenders do not look at your credit history at all and assess your mortgage application based on its merits. The disadvantage is that you may get a higher interest rate but refinancing can save you from paying this higher cost forever.

Get out of a high-interest bad credit home loan

Are you currently paying off a mortgage with a specialist or non-conforming lender?

In as little as 6-12 months, you can refinance back to a major bank or lender at a much sharper interest rate.

Good mortgage brokers know this but don’t expect your specialist lender to tell you this!

The key to refinancing to a standard interest rate is that you have a steady income and have been making your home loan repayments on time, every time since getting your bad credit home loan.

Refinancing to get potential tax benefits

If you refinance to access equity in your home and use those funds to invest in property, shares or other wealth-building opportunities, you may be able to take advantage of negative gearing and depreciation benefits.

Let’s say you spent $50,000 on renovating your investment property, you may be able to claim depreciation on these costs over the life of the loan.

Please note that it is recommended that you speak to a tax professional to find out exactly how many deductions you will be allowed.

Find a home loan that best suits you

Most Australian homeowners have the wrong home loan features or have “bells and whistles” that aren’t being used effectively but are still costing them hundreds in bank fees.

By refinancing, you can get the right home loan product that will help you pay off your home loan faster.

You can learn even more about the home loan products and features available to you by refinancing with a mortgage broker.

They’ll provide a guide on:

  • Fixed rate home loans.
  • Variable rate home loans.
  • Split mortgages.
  • Rate tracker home loans.
  • Professional packages.
  • Basic home loans packages.
  • 100% offset accounts.
  • A Line of Credit (LOC).
  • Flexible repayments: This allows you to make extra repayments at zero additional cost so you can pay the loan off quicker.
  • Repayment holiday: This facility lets you take a break from making repayments if you change jobs or apply for extended leave from work such as taking maternity leave. Certain lenders may also let you make reduced payments instead.
  • Loan portability: If you’re moving from one home to another then this feature will allow you to take your loan with you whenever you move without needing to arrange a new loan.

We have nearly 40 lenders to choose from including major banks and specialist lenders.

We can help you refinance to a much cheaper rate, unlock your equity and help you achieve your financial goals.

Call 0498 877 110 or fill in our free enquiry form today.

About the author

My Local Broker is a dedicated team of experienced, nationally recognised mortgage professionals who are inspired by one vision:"To redefine the mortgage lending experience, providing local, personalised attention to each of our clients using advanced lending technology to enhance your experience, saving you time with simple, yet efficient processes."