| refinance, mortgage | 8 Apr 2008 12:00 AM |
| When would I refinance my Mortgage? by Michelle Kour | |
Whenever it makes financial sense to do so.
Mortgage Refinancing? In the past, most people who took out a Mortgage continued with it until they had paid it off. These days, people refinance their Mortgage much more frequently. The average duration of a Home Loan in Australia now is just 4-5 years. Here we look at some of the reasons people in Australia refinance their Home Loan.
Mortgage Refinance Reasons: lower rate
The most common reason for people to refinance their Mortgage is to get a better interest rate. People need to be careful they don't become interest rate-fixated. When you refinance your Home Loan, you need to consider fees and charges as well as the interest rate. You often have to pay charges for exiting your current home loan, plus charges for taking out the new mortgage. You need to be sure that in refinancing your Home Loan that you'll be better off in the long run after taking into account all costs.
Mortgage Refinance Reasons: more flexibility
Many people only discover the full details about their Mortgage when it's too late. They try to do something and get told by their Lender that either they can't do it, or they will incur a hefty charge if they do. An example is a Redraw Facility - the ability to pay extra money into a Mortgage and then redraw it later. Many people need to be aware that not all loans products with a cheaper interest rate, have the flexibility to redraw, therefore when refinancing you need to explore your options in which products are suited to each individual for having a “redraw facility” .
Mortgage Refinance Reasons: renovation
If you carry out renovations, it often makes sense to refinance your Mortgage and take out a construction loan so you only pay interest as building progresses. Once construction is over, it might make sense to refinance your Home Loan again so that you consolidate the total amount you owe into a loan that minimises your interest bill, while giving you a degree of liquidity. If you are happy with your existing lender and would prefer not to refinance, you should approach your lender and see if you can negotiate a line of credit facility to fund your renovations. The extent of the renovations will determine whether you need to refinance into a construction loan - major building work (e.g. adding a second storey) or can manage the work with a line of credit – minor work (e.g.new kitchen being installed).
Mortgage Refinance Reasons: home equity
Over recent years in Australia’s property market houses have appreciated at a significant rate. e.g. a home you bought for $300,000 five years ago, might now be worth $500,000. A Refinance of your Mortgage to tap into equity, has become very common as borrowers seek to purchase their first investment property or invest in the share market.
Mortgage Refinance Reasons: defaulting
Some people find they have borrowed more than they can comfortably repay, and they're in danger of defaulting. A simple solution may be to refinance your home loan, as well as consolidating any other debts (which have a significantly higher rates of interest) that you may have. Do the numbers first and if there a good cash flow benefit is generated by a refiancne then seriously look at the exercise before you get into real difficulties with your mortgage and your credit history becomes compromised. If there is a cash flow benefit obviously a refinance makes your home loan more manageable and easy in that you only have one simple monthly repayment, rather than 5 different repayments. If cash flow is a real problem consider seeking an interest only period from your existing lender while you work your way through difficult times.
Mortgage Refinancing? In the past, most people who took out a Mortgage continued with it until they had paid it off. These days, people refinance their Mortgage much more frequently. The average duration of a Home Loan in Australia now is just 4-5 years. Here we look at some of the reasons people in Australia refinance their Home Loan.
Mortgage Refinance Reasons: lower rate
The most common reason for people to refinance their Mortgage is to get a better interest rate. People need to be careful they don't become interest rate-fixated. When you refinance your Home Loan, you need to consider fees and charges as well as the interest rate. You often have to pay charges for exiting your current home loan, plus charges for taking out the new mortgage. You need to be sure that in refinancing your Home Loan that you'll be better off in the long run after taking into account all costs.
Mortgage Refinance Reasons: more flexibility
Many people only discover the full details about their Mortgage when it's too late. They try to do something and get told by their Lender that either they can't do it, or they will incur a hefty charge if they do. An example is a Redraw Facility - the ability to pay extra money into a Mortgage and then redraw it later. Many people need to be aware that not all loans products with a cheaper interest rate, have the flexibility to redraw, therefore when refinancing you need to explore your options in which products are suited to each individual for having a “redraw facility” .
Mortgage Refinance Reasons: renovation
If you carry out renovations, it often makes sense to refinance your Mortgage and take out a construction loan so you only pay interest as building progresses. Once construction is over, it might make sense to refinance your Home Loan again so that you consolidate the total amount you owe into a loan that minimises your interest bill, while giving you a degree of liquidity. If you are happy with your existing lender and would prefer not to refinance, you should approach your lender and see if you can negotiate a line of credit facility to fund your renovations. The extent of the renovations will determine whether you need to refinance into a construction loan - major building work (e.g. adding a second storey) or can manage the work with a line of credit – minor work (e.g.new kitchen being installed).
Mortgage Refinance Reasons: home equity
Over recent years in Australia’s property market houses have appreciated at a significant rate. e.g. a home you bought for $300,000 five years ago, might now be worth $500,000. A Refinance of your Mortgage to tap into equity, has become very common as borrowers seek to purchase their first investment property or invest in the share market.
Mortgage Refinance Reasons: defaulting
Some people find they have borrowed more than they can comfortably repay, and they're in danger of defaulting. A simple solution may be to refinance your home loan, as well as consolidating any other debts (which have a significantly higher rates of interest) that you may have. Do the numbers first and if there a good cash flow benefit is generated by a refiancne then seriously look at the exercise before you get into real difficulties with your mortgage and your credit history becomes compromised. If there is a cash flow benefit obviously a refinance makes your home loan more manageable and easy in that you only have one simple monthly repayment, rather than 5 different repayments. If cash flow is a real problem consider seeking an interest only period from your existing lender while you work your way through difficult times.
Set as favorite
Bookmark
Email This
Hits: 117
Comments (1)
Subscribe to this comment's feed
written by Daniel, June 25, 2008
You may want to refinance because you would like to save money each month, or to get some cash out, or you are in a ARM that is adjusting and you would like to get into a fixed mortgage. Many people apply for remortgages that allow to take cash out of the equity which you have built in your home. You can pay off your higher interest debts and pay all of your debts at a lower interest rate. This will allow you to save money on a monthly basis and achieve your financial security.
report abuse
vote down
vote up
Votes: +0
Write comment
Home
About Austral
Our Products
Austral Deposit Bonds
Today's Rates
MORTGAGE CALCULATOR
News
Ask Vicky Q&A
MY CHOICE BROKING
FAQ's & Case Studies
Useful Links
Contact Us
