Should you refinance?

The first question that you need to be answering is whether this is even the right step for you. There are many reasons why you may consider this approach – perhaps you want to reduce your repayments, take advantage of a lower interest rate environment, are looking to purchase an investment or your life plans, or plans for that investment, have changed.

Every time your situation in life and your goals evolve, you’ll want to have a good look at how your mortgage currently stacks up for you. This may then prompt you to consider refinancing. One quick way to see whether you should be considering your options is to answer the 15 questions below.

If you answer “yes” to one, or more, of the questions, then you really should be considering your refinancing options. Consider this your mortgage ‘health check’.

1. Do you want to reduce your monthly repayments?

2. Are you looking to switch from a variable rate to a fixed rate? This may be due to the risk of higher repayments if interest rates rise in the future, or because you’d like more certainty around repayments.

3. Are you dissatisfied with the service provided by your current lender?

4. Is your current interest rate not as competitive as other lenders’?

5. Would you be better off with a cheaper rate with fewer loan features?

6. Would you benefit from changing to a loan with more features (e.g. offset account, re-draw facility) or perhaps you have features you are not using?

7. Would you prefer to pay off your home loan sooner?

8. Have your circumstances changed since you first took out your loan (e.g. you have started a family)?

9. Are you considering buying an investment property?

10. Do you think that debt consolidation might benefit you (e.g. consolidating your credit cards and personal loans)?

11. Are you planning any home renovations over the next few years?

12. Do you want to raise cash (by topping up your loan) so you can, for example, purchase a car, buy shares or take a major holiday?

13. Do you have a fixed-rate home loan that will expire soon?

14. Do you have a honeymoon rate that will soon revert to the standard variable rate?

15. Are you coming to the end of an interest-only loan term?

TIP: If you can avoid extending your loan term, then do so. Remember that if you signed up for a 25-year loan, and you’ve had it for five years, you’ll want to be asking about a 20-year loan term.  

This article is from Property Observer's free ebook Mastering the Art of Refinancing: 12 tips for success and key things to consider.

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