With house prices continuing to drop across Australia and lenders competing to offer the lowest interest rates, now could be a good time to secure a new home loan before the inevitable price hike.
Switching your mortgage could save you thousands of dollars or give you more flexibility, but this is a decision that needs to be made carefully, or you could end up worse off than before. Here are some of the questions you should ask yourself if you're considering refinancing your home loan.
Could you get a better rate?
The most common reason people seek out a better mortgage deal is to pay less in interest. Many loans are now offered to owner-occupiers at less than 4% interest (depending on your circumstances), with some lenders going even lower.
Changing your mortgage to a rate even 0.5% less than you're currently paying could add up to big savings in the long term, but you should compare all features of the new loan to make sure you won't be missing out in other areas.
It's important to note that refinancing has costs of its own, which may outweigh a small interest gain. You should first talk to your lender to see if you can negotiate a lower rate on your current loan.
Could you shorten your loan term?
If your circumstances change, you may feel burdened by having to pay a mortgage over many years that you'd prefer to pay off sooner. If your current loan doesn't allow early repayment, or charges fees for doing so, switching to a shorter term loan could help you avoid years of unnecessary interest payments and give you financial freedom faster.
Shortening the loan term increases the amount you'll pay every month, but sometimes this difference can be negligible. Before making your decision, you need to be confident that you'll be able to afford these higher payments for the duration of the term, or you could risk defaulting on your loan.
Could you make your finances simpler?
If you're struggling to keep on top of multiple loan payments each month, from your home loan to credit card payments, a student loan and other personal loans, refinancing your mortgage could give you the opportunity to roll all of these obligations into a single monthly payment.
Consolidating your debt can make it easier to manage your finances and mean you have more money left over each month, especially if you're dealing with high-interest debt. However, you could end up paying more in the long term. It's also important to break any bad borrowing or spending habits that might have led to high-interest debt in the first place, or you could find yourself there again.
Is it the right time for you?
You shouldn't base your decision to refinance on interest rate predictions alone, as these can be unreliable and subject to change. Any serious financial decision needs to be considered carefully and should account for your personal circumstances now and in the future. If you have job security and a steady income, you'll be in a better position to negotiate a favourable loan than a higher-risk borrower.
Before making any decision about your finances, you should speak to a professional to make sure you understand all the options available to you. Schedule a free consultation with Debt Fix's experts by calling us now on 1300 332 834 or take our free debt advice assessment.
