When you start investing in property, for non financy people, there are a few things you need to learn quickly to ensure you’re making the right, educated financial decisions for your situation. So once you’ve cracked the market, there’s relief, thinking you’re free of having to make any major financial decisions for some time. While this is largely true, making financial decisions on your property doesn’t stop after purchasing. You need to continuously ensure your loan is working as hard as it can so you can get the most out of your investment.
For example, a couple of years into your loan, you may consider refinancing aka reducing the interest rate on your loan. More and more people are refinancing their homes to save money, solve their financial woes or even help them make that next big purchase.
Here are 3 reasons why you should refinance your loan:
1. Take advantage of low interest Rates before it’s too late
Refinancing saves homeowners an average of $2880 per year according to the Aussie Home loan refinancing report and with historically low rates, now is the time to cash in on the potential savings. You see, we have seen historically low rates for some time now, opening a window for many Australians to refinance and save. But with recent murmurs of an interest rate rise, it’s important to see if you could benefit from refinancing before it’s too late.
For example, If you can reduce the interest on your loan and repay the same amount of money, you might be able to cut your 30-year mortgage down by years. Say you took out a 30-year loan at 6% in 2007. You could’ve refinanced that in 2014 at 3.55% and paid off your house 9 years earlier (saving $118,058!).
2. Your financial situation has tightened
With life constantly changing – another loan type might make more sense for you today. You might have new expenses that stretch your money further every month so you’re looking to free up extra cash each month. By refinancing your 30-year mortgage at a lower rate and making smaller monthly payments, you could free up something like $250 each month.
Another option could be refinancing to a fixed-rate mortgage. You’ll lock-in one of the lowest rates ever to protect yourself against the likelihood of rates rising in the future. And it’ll be much easier to plan and budget for the long term.
3. You’re planning to make a big purchase
You might be planning to buy your next property or a business, are keen to go back to school to improve your long term income or have an impending big expense like a wedding or home renovations. In any of these cases, refinancing could be a better option than taking out another loan at a much higher rate.
Whatever your situation, you should consider refinancing your home to take advantage of historically low interest rates by talking to your mortgage broker or bank. Make sure you explore all your options and be wary of your bank giving you their so-called ‘best-rate’.