What is refinancing?

Refinancing is when you take out a new mortgage to repay an existing loan. This is often because of a change in your financial situation but it can be for personal reasons too. You may even want to refinance to lock in a better deal on your mortgage.

The new loan may come with different terms, like moving from a 30-year mortgage to a 15-year period. You may also want to refinance so you can move from an adjusting rate to something fixed. Typically, however, the most common reason to refinance is to secure a lower interest rate on your loan.

Why refinance?

Not only can refinancing help you lower your monthly payments, it can save you money over the life of your loan. It could also help you pay your mortgage off faster or draw out from your home’s equity if you need flexible cash. An example of this is if you wanted to fund a renovation.

It can be a smart way to manage your money and often gives you options for consolidating debts, securing better rates, and unlocking equity in your home. When you’re considering refinancing, you’ll look at either increasing, decreasing, or keeping the loan as is.

Increasing your loan

You may increase your mortgage to merge other debts into one, particularly considering that home loan rates are typically lower than rates on credit cards. This could be the ideal way to make your debt repayments lower each month and easier to manage.

Decreasing your loan

If you’re looking to decrease your loan with a lump sum, you may not need to refinance at all. However, it’s always a good time to assess the rates and terms that lenders are offering, just in case there’s a better deal out there. Other reasons to decrease your loan could be to lower your monthly repayments, or secure a lower interest rate.

Keeping your loan the same

If your intention is not to move up or down in your loan, then it’s most likely you’re looking for a better deal. That may look different for each person depending on their circumstances. For example, you may pay for add-ons you don’t need or want, or perhaps your credit score has gone up and you can now look for a better interest rate.

How does it work?

While the refinancing process is typically with the same lender, it’s not uncommon to change providers. The best way to go about refinancing is to compare home loans from various providers. This makes it easier to gauge what is going to work for you and what kinds of deals appeal to your lifestyle.

The first thing you’ll want to do is check in with your current lender. They may have early exit fees in their terms and conditions, so it may be worth waiting a little longer. Following that, compare various home loan products to establish if there actually is a better deal out there.

Should you refinance?

Ultimately, you’re going to know best if it’s time for a change. What are your long- term goals? Will refinancing help you save for your future?

It doesn’t always have to be a complicated process but it can certainly feel like it. If you need extra help with this process, speak to one of our advisers for some expert advice.