Types of Home Loans: Refinancing explained

  • Posted 18 Dec

Types of Home Loans: Refinancing explained

Buying a home or an investment property will most likely be the biggest financial decision anyone will ever make in his or her lifetime. So you’ve find the property, got the finance and made the purchase and achieved the Australian dream of owning your very own piece of real estate. But what happens when circumstances change? Whether it be personal or financial, there will most likely come a time in the life of a mortgage where the features and benefits of the loan structure no longer meets your requirements of today. Maybe you’ve changed jobs, about to retire or the cash rate is on the move and there is any opportunity to free up some much needed funds to spend on leisure activities, save or take that long overdue holiday you have been dreaming about.

What is refinancing?

With the aggressive nature of todays mortgage market, refinancing has become a lot easier option to consider and put in place. ‘Refinancing’ your home loan is when you payout your existing loan with a new product from your current lender or a new lender. There are costs associated with refinancing your loan and the wrong decision can find you paying more then you were originally, so due diligence is a must to ensure the new product or lender or both are in fact the right move for you and your mortgage.

Fixed or Variable rate loan

The above two options really come down to your financial position and how active you want to be with your mortgage.

What is a fixed rate home loan?

Fixed rate home loans allow you to lock in your mortgage at a rate and protect you against any increases in rates in the future. The fixed rate option is great for those you like to have a set budget and wouldn’t have the ability to service their loan if the rate was to increase. While you run the risk of missing savings if the loan rates were to reduce, this is certainly a “piece of mind” option.

What is a variable rate home loan?

Choosing a variable rate loan can see you take advantage when the loan rates are falling and save even more money. But be sure to consider that this option can as easily see you paying more if the loan rates are on the rise.

Can you combine fixed rate and variable rate?

If the above don’t quite give you exactly what you want, there is the option to split your home loan between variable and fixed. This type of loan will give you the bonus of the variable but provide a level of certainty that is associated with a fixed loan structure.

There are an abundance of loan structures to allow you to tailor to your day to day needs and the way you use your money and the equity you hold within your property and advise from a mortgage broker will certainly help to navigate through this plethora of options to ensure you have the best fit for you.

Once you have selected the product and possibly a new lender to refinance your mortgage with the process is much the same as when you originally applied for your original loan. On approval the existing loan will be paid out and if a new lender is involved, the title deed for the property will be transferred over to the new lender.

Where to get advice?

Refinancing your home loan can be a great way to improve your financial position and with some due diligence and the right advise from a mortgage broker you can see this decision be a positive and rewarding one. [hr]

If you’re looking for some great home loan advice, the team at Australian Credit and Finance are here to help. Call the team on 1300 735 557 or LiveChat today.

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