Refinancing your home means changing your existing loan for a new one. This is generally done when people are looking for a better rate or to increase their existing loan to withdraw some home equity. You can refinance your home from any bank or lender you choose, and it doesn’t necessarily have to be your existing one. While there are a multitude of reasons why people refinance their home, here are the five main reasons to refinance your home and what to do next.

Borrowing to renovate

One of the most common ways to fund a renovation is by extending your existing home loan by borrowing more using the equity you have built up in your home.

Simply put, equity is the difference between the bank’s valuation of a property and the amount of money a person owes on a home loan. This builds up over time as the value of a property increases and the balance of a home loan decreases.

Using your equity to extend an existing home loan helps you avoid the additional costs of creating a new loan.  However, note that if you increase your LVR by over 80% you may have to pay lender’s mortgage insurance.

Borrowing to invest

There may be an opportunity to use the equity you have built up in your home to borrow against so that you can use the money to invest.  Please note that it is very important to check with your accountant and/or financial planner to ensure this is an appropriate financial strategy for you and that you are aware of all the risks associated with borrowing to invest.

Get a better interest rates and lower fees

Banks often give you a great rate to win your business in the beginning but over time you might find that you are not getting the best rate anymore or find that you are incurring more fees than necessary.  It is important to keep the banks honest and review the terms of your loan regularly including interest rate and fees and refinance when necessary.

Take advantage of new loan product features

You’ve had a look at what different banks are offering and realised you are missing out on additional features that could save you thousands of dollars over the course of your loan.

Financial institutions are continually innovating to stay competitive so it’s definitely worth looking at what’s on the market. Here are four loan features you should keep an eye out for:

Interest only repayments

This allows you to reduce your monthly repayments so you are only paying off the interest portion of your loan.

Additional repayments

This allows you to make additional repayments while interest rates are low.

Offset account

This allows you to keep a sum of money in a separate account reducing the balance you need to pay interest on.

Redraw Facility

A redraw facility allows you to claim back additional repayments if you need quick cash.

Switching between fixed and variable interest rates

As interest rates move it might be time to review whether fixed or variable rates are more appropriate for you.   You need to compare interest rates and loan terms and make sure you have enough flexibility to cover your repayments for the next few years.

Here are some things you should consider before switching to a variable interest rate.

• Exiting a fixed rate contract before the term finishes could be costly 
• Be prepared for your repayments to fluctuate as interest rates change
• You can split your loan between fixed and variable rates if you would like to lock in a portion of your repayment to a set amount

Where to start?

As you can see there are many reasons why people choose to refinance their home loan, so where do you start?

Understanding your property’s true value and your borrowing power can be difficult so the first thing you need to do is organise a valuation of your home to get a clear understanding of what your property is worth in the current market. This estimate will be used to calculate your LVR (Loan Value Ratio) which will affect the amount of additional money you can borrow from the bank.

The banks will lend up to 80% of the value of the property without requiring the additional cost of mortgage insurance.

Then you need to compare the terms of your current loan and compare that to what other banks are offering. This is where refinancing can become confusing and complicated but that’s where we can help.

Get in touch with Justin today and let him walk you through the process.