Refinancing a fixed-rate home loan can be a great way to save money and get better terms, but it can also be risky if you don’t do your homework. Before you start the refinancing process, it’s important to understand how much you can afford, any costs associated with breaking a fixed-rate home loan, what the current market rates are, and how long you plan on staying in your home.
Review Your Current Loan Terms
It’s essential to review the details of your existing loan before attempting a refinance. Take note of how long ago you purchased your property, the original loan amount, interest rate, current balance and remaining term when shopping for another lender. All of these pieces of information should be known before proceeding with a refinance, which will help you know if it's worth it or not.
Analyse the Costs of Refinancing
Before considering a refinance, it’s important to do the math to ensure it would be worthwhile. Since there will most likely be an upfront cost associated with a refinance - such as closing costs and fees - it’s important to make sure the interest savings outweigh these fees. Consider your current payments, the term of the loan and potential savings over time when making this decision.
Figure Out How Much You Can Save by Refinancing
Before moving forward with the refinancing process, review current offers and decide if it’s worth it to switch lenders. Consider how much money you’ll save over the lifetime of the loan by switching. Calculate the total interest cost that will be saved over the remaining term of the loan. This will give you an accurate idea of just how much a refinance can save you in finance charges and time to pay off your existing loan.
Why you may want to refinance a fixed-rate loan
Access extra funds
Homeowners can use refinancing to get access to additional money at a lower interest rate than other sources of credit.
To take advantage of lower interest rates
When mortgage rates are rising, it can be beneficial for homeowners to be on the lookout for lower interest rates. Refinancing to replace their current loan with one that has lower interest payments can help families save hundreds, if not thousands, of dollars every month.
Reduce monthly repayments
Refinancing can help you lower your monthly repayments by reducing the total amount of your loan or increasing the length of repayment terms.
Consolidate debt
Homeowners can use refinancing to combine multiple loans into one loan with a single, more manageable repayment schedule.
You're unhappy with your current lender
Homeowners can refinance a fixed loan if they're unhappy with their lender to get more favourable terms, such as a lower interest rate or reduced fees. This can ultimately save them money and help them reduce the amount of money they need to pay each month. Additionally, switching to another lender can also give the homeowner more control over the features of their loan and provide them access to better customer service.
How to decide whether you should refinance your fixed home loan
Deciding to refinance can be difficult as it can have both positive and negative implications. Before making any decisions, homeowners should carefully consider how refinancing their fixed loan can affect them financially in the long run. Several factors need to be taken into account before deciding if refinancing is right for you, such as whether you can get a lower interest rate or reduce your monthly payments.
If the sound of analysing loan contracts, reviewing budgets, evaluating your financial position is a little overwhelming, and searching the market for the best rates, then consider working with a mortgage broker who can work through this analysis with you. A mortgage broker can guide you through this process and help you understand any potential fees associated with refinancing your existing loan, and ensure any new loan will improve your monthly budget.
Being prepared can make all the difference when it comes to getting the best deal on your refinanced home loan, this includes knowing what questions to ask lenders and brokers so that there are no surprises down the road. Taking these steps will help ensure that refinancing your fixed-rate home loan is truly beneficial for both now and in the future.
