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How to Decide if Refinancing Your Home Loan is Right for You?

Updated: Apr 30

Do you often sense that the monthly repayments on your home loan are stretching beyond your current income? Have you been in a situation where you fear that your home loan is stopping you from making other significant investments? Then, considering refinancing is a better choice. It involves replacing your existing loan with a new one that offers a lower interest rate or a better loan term option.

How to Decide if Refinancing Your Home Loan is Right for You?

Although it comes with crucial factors that you must consider, refinancing can be a futuristic strategy with a refinance broker who will help you manage your financial needs more logically. 

In this blog, we will discuss these factors, including comparing your interest rate with current market standards, understanding the refinancing costs, and aligning it with long-term housing options. Let's start.

Why to Refinance Your Home Loan?

Before we discuss whether refinancing is right for your needs, let's learn why the concept is growing.

1.Lowers Your Interest Rate:

When you replace your home loan with a new loan option, it is most likely because you're getting a cheaper interest rate than what you're paying now.

2. Shorten the Loan term:

The shorter the home loan tenure will be, the higher the monthly repayments. However, a refinance broker suggests that refinancing your loan to a shorter term involves paying off the mortgage faster and saving on long-term interest payments. 

3. Converting to Better Home Loan Type

With two types of home loans, fixed and variable rates, available according to your financial needs and goals, switching to another one can be flexible with changing lifestyles and interest rates. 

For example, if you are paying your bills, have more than one debt to handle, and are considering significant expenses in the near future above the fixed loan repayments, then it is better to refinance your home loan to a variable-rate loan. Here, you initially pay higher monthly instalments but gradually shift to lower repayments over a long tenure.

Similarly, if your mortgage broker in Kew predicts that interest rates on variable-rate mortgages are dropping constantly, then refinancing to an adjustable rate from a fixed one can help you take advantage of the lower interest rate. 

4. To Use Cash-out Refinancing

Cash-out refinancing is a financial strategy to make use of your home equity. Home equity is the portion of what you truly own over and above your home loan. It is the difference between your current home value and your mortgage. You'll typically need 20% of home equity to refinance your existing loan with lower interest rate options.

How to Decide If Refinancing is Right for You?

Now that you have understood the whys behind refinancing your home loan, let's be clear on the deciding factors. Every financial decision a homeowner makes ultimately depends on their financial situation and goals. So, the decision to refinance must come along with the guidance of a trusted mortgage broker in Kew. 

Let's learn how a broker helps in such cases.

1. Talk through your Financial Situation:

One of the most obvious steps yet overlooked is to have an expert eye on your home loan and financial situation. Mortgage brokers in your region can be your guide to help you navigate the refinancing process. 

Additionally, they will guide you to refinance only when they have confidence that your financial situation is improving and you are a low-risk borrower to be eligible for lower interest payments.

2. Have a Mortgage Broker to Negotiate With Lender

Many mortgage brokers have the ability to negotiate with your existing lender to request and change the interest rates to better terms. This is one quick and easy way to help lenders and borrowers retain their existing deals.

3. Analyse your Current Home Loan Interest 

Many lenders and banks would hardly ever inform you about the lowest interest rates available in the market. That is where a mortgage broker in Kew helps with reviewing your current interest rate to check if it is competitive. 

This is done with the help of fintech software every year to help you be in a safe space. If a broker finds that there are cheaper rates available, they will recommend refinancing a better option.

4. Cross Checks Refinancing Costs and Savings

A mortgage broker also offers a free loan health check assessment, during which either you or a broker calculates your new loan's total costs and savings. This process is usually called a break-even point, a point at which new loan savings exceed refinancing costs. 

Your broker calculates this by dividing the total refinancing costs by the monthly savings on your new loan. The result you get is the number of months it will take you to cover the costs. If you are planning to stay longer than these months, then only refinancing is a cost-effective option to make savings.

Final Words

We hope that this blog has helped you understand the benefits of refinancing and how to start the process as a beginner. Refinancing is a significant and crucial decision that must only be considered when you are confident that you can repay the money on time. Even though you are making reduced payments, lenders always look for low-risk and credible borrowers to grant you the benefit. 

If you are already considering refinancing, choose Axton Finance as your refinance broker for top-notch first-time home loan options, refinance, or expert guidance in mortgage products.

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