Refinancing is an exciting opportunity to replace your existing loan with a new one! It can help you shorten your loan term and reduce your monthly payments, allowing you to pay off your mortgage sooner.

Let’s explore the numerous benefits of refinancing together and discover how it can enhance your financial future.

• To obtain a more suitable interest rate or access new features, such as flexible repayments, redraw facilities, or an offset account. 
• To access the equity in your home for renovations, investments, or travel.
• If you’re coming to the end of a fixed-rate term and want a more suitable interest rate or a more flexible home loan.
• To consolidate debts, such as personal loans, car loans, or credit cards, into your mortgage, making it easier to manage your finances.
• Some borrowers choose to refinance and change to a different loan type altogether. For instance, you might refinance from a variable-rate loan with your current bank to a new lender offering a competitive fixed-rate loan. Alternatively, you might refinance into a split loan, where part of your loan has a fixed rate while the rest has a variable rate.

Refinancing can be both time-consuming and costly, and a new loan may not include the desirable features of an existing loan. Nevertheless, refinancing has several potential advantages.

Save Money – A common reason for refinancing a loan is to reduce interest costs. To achieve this, you generally need to refinance into a loan that has a lower interest rate than your current one. This can lead to significant savings, particularly with long-term loans and larger amounts borrowed. Lowering the interest rate can make a notable difference in the overall cost of the loan.

Equity Release – Property prices tend to appreciate over time, while your loan amount usually decreases. As a result, you may build up equity in your home that you can access through refinancing. This released equity can be used for various purposes, such as purchasing another property, investing, or making significant purchases like renovations, a holiday, or a car.

Lower Payments – Refinancing can result in lower monthly payments, which makes it easier to manage cash flow and frees up more money in your budget for other monthly expenses. When you refinance, you often reset the repayment period, extending the time you have to pay off the loan. Since your remaining balance is likely smaller than your original loan balance and you have more time to repay it, your new monthly payment is expected to decrease.

Shorten the loan term – You can choose to refinance your loan into a shorter term instead of extending the repayment period. For instance, if you have a 30-year home loan, you could refinance it to a 15-year home loan, which usually comes with a lower interest rate. Alternatively, you can make extra payments on your current loan without refinancing. This way, you can avoid closing costs and maintain the flexibility of not being obligated to make those larger payments.

Consolidate debts – Consolidating your multiple loans into one can be a smart move, especially if you can achieve a lower interest rate! This method not only simplifies your payments but also brings clarity to your financial journey.

Change your loan type – If you hold a variable-rate loan, exploring a switch to a fixed-rate loan could be a smart move! A fixed interest rate offers security, especially when current rates are low but projected to increase.

Payoff a loan that’s due – Certain loans, like balloon loans, have a set repayment date, which can sometimes be challenging. If a large lump-sum payment is looming and you’re unsure about meeting it, consider refinancing!

This approach allows you to take out a new loan that can cover the balloon payment, giving you additional time to settle the debt. For example, many business loans are due within a few years, but with a solid payment history, businesses often find they can refinance into more extended terms, paving the way for financial stability. Embracing this option can truly help you manage your payments with confidence!

The fixed-rate period on loan that is expiring – In Australia, it is quite common to have a fixed-rate loan term that lasts between 1 to 5 years. Once your fixed rate term ends (also referred to as expiring), your loan will automatically switch to a variable rate.

However, in most instances, the bank’s standard variable rate does not offer any discounts. To avoid this situation, you can consider switching to another fixed rate or exploring refinancing options to maximize your interest rate discount.