It’s not uncommon to need to refinance your home as your lifestyle and aspirations change.
Perhaps you want to buy a bigger home or invest in a major renovation that can’t be covered by the equity you’ve earned from regularly paying down your mortgage. Or perhaps the way your mortgage is structured doesn’t allow enough flexibility.
Refinancing can feel like starting the home loan journey all over again but using a mortgage broker can make it significantly easier. Elements to consider in a new loan include comparison of interest rates, loan terms and fees. You also have the option to split a loan between fixed and variable rates – or jump from one option to the other.
Be aware that embracing one of these arrangements can sometimes change how you pay off your loan. It pays to understand the details or you can find yourself in an unnecessarily expensive arrangement. A good example of this is a fixed-rate loan as these often do not allow for an early repayment.
Let’s look at the specifics of each option:
Variable Rates
The cost of borrowing rises and falls depending on economic factors, such as inflation or international money markets. Lenders traditionally pass on an interest rate cut savings from the Reserve Bank, but they can also independently increase the rate, citing rising business costs.
Variable rates usually do not have a fixed term, and this can allow more repayment flexibility, enabling you to pay down your mortgage faster than the schedule.
Fixed Rates
A fixed loan remains at the applied interest rate for the life of the loan regardless of external factors. This will enable you to budget consistently for your new mortgage. It can be a good option if you need security that your repayments won’t change.
Most consumers opt for a fixed-rate loan of up to three years, although extended options exist. Many will lock in a rate when they believe it’s at a low point. However, you should be aware that some lenders stipulate you cannot pay down the loan faster than the prescribed schedule.
This article is provided for general information only and does not take into account the specific needs, objectives or circumstances of the reader. Before acting on any information, you should consider whether it is appropriate for your personal circumstances, carry out your own research and seek professional advice.