The simple answer: whenever it makes financial sense to do so.
Have you heard about 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.
Here we look at some of the reasons people in Australia refinance their home loan:
A lower rate
The most common reason for people to refinance their mortgage is to get a better deal. But be careful you 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. Generally, you will 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.
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. This feature is not possible with a basic home loan, so many people refinance their mortgage to give themselves this sort of increased flexibility.
Renovations
If you are thinking about making 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.
Home equity
Over recent years some housing markets have appreciated at significant rates. e.g. a home you bought for $400,000 five years ago, might now be worth $500,000. Refinancing your mortgage with a home equity loan might let you tap into that extra $100,000 equity.
Contact a Resolve Finance broker to learn more about how they can help you refinance your mortgage.