Just because you find the right loan now doesn’t mean it’s going to still work for you in 5 year’s time. That’s where refinancing your mortgage comes in.
Not everybody sticks with the same mortgage throughout its whole term. While it’s tempting to think that when you find the right loan you’ll stay with it until it’s fully paid off, there’s a good chance you’ll end up refinancing that mortgage at some point.
What is refinancing?
Refinancing is simply the act of taking out a new mortgage to replace your current one, or updating your existing mortgage.
Why do people refinance?
Borrowers refinance their mortgages for a variety of reasons, generally to do with making their loan more suitably match their current circumstances. People’s situations change over time, and the loan that suited them 5 years before may not be the perfect fit now.
Some of the reasons borrowers might refinance include if:
- Interest rates fall and they want to jump on the bandwagon
- Their financial situation has improved and they can get more generous loan terms
- They need a particular type of loan product, such as a debt consolidation loan, or a split home loan
- They want to change the type of interest rate – from, fixed to variable, for example
- They need cash for a large expense, like renovations or a vehicle
How does refinancing work?
Upon taking out a new home loan, a portion or all of these funds will go toward paying out your current mortgage. Refinancing doesn’t have to be done through a different lender though – many people end up taking out a new loan through their existing lender, if the product is the right fit.
Is refinancing always a good idea?
Any home loan decision should only be taken if it serves your best interests. There’s no point refinancing just for the sake of it – it doesn’t make for a terribly good story at parties! But it never hurts to ask your mortgage broker for a home loan health check to see whether it’s the right option for you.