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If you're paying off a home loan it's highly probable that you have thought of getting it refinanced. You probably have a good reason why. Maybe you're strapped for cash or thinking of ways to reorganise your financial state.
You might be ready to get out of the house or dial your lender's number. However, are you sure it's the right decision? Are you sure that it's the right time to do it? If those questions are still playing on your mind read this article first.
1. If you want a lower loan's interest rate
One of the primary reasons why homeowners refinance home loans is to lower their current interest rate. When times are tough, a lowered interest rate can let you have a few extra dollars in your pocket after you pay the bills and monthly loan payment.
Refinancing gives you a bit of control over how much you can afford to pay at the moment.
2. If you want to shorten the loan term
Several factors could affect how mortgage lenders calculate your interest rate. They may factor in your excellent credit score and the amount of the down payment. Another factor is the economic climate.
Know that the current state of the economy can influence the interest rates of home loans. When the economic conditions improve, refinancing your loan may net you a much better interest rate.
With the improved interest rate, you can shorten the loan term by keeping the same amount you pay per month with a lowered interest. Basically, you'll actually be paying more, which can lessen the number of months you need to pay the loan back completely.
Let's say you're paying for an AUD$100,000 house for 30 years. If you're paying AUD$568 at 5.5 per cent, refinancing could drop the term to 15 years instead, which will vamp the monthly payment to AUD$715. That can work if you have extra money to spare.
3. If you want to turn your home into a rental
Some may advise not to sign into a refinancing agreement when you're moving away. But you can if you still want to keep the house as an investment property. You can benefit two ways from this strategy:
1. You can enjoy huge savings while it's paying for itself by having your mortgage lender recalculate your rate.
2. You will get more profit out of it.
A cash-out refinance is also possible since you're borrowing money from the equity of your property if you've built up enough on it. You can use the money for maintenance jobs and repairs on the property itself. That saves you money as you don't need to pull cash out-of-pocket to pay for necessities.
So, if you plan to move away but still want to keep your old home, you can search out tips on how to turn your property into a business. You will need to get insurance and permits; you also need to keep the place in order if you want to maximise the benefits from refinancing.
4. If you want to use your home equity
As mentioned, if your home has enough equity, you can withdraw some of it through cash-out finance. Not only can you use the money for the house itself, but you can also use it for any other purpose you can think of.
If you have credit card bills or other types of loans that are putting pressure on your monthly expenses, you can use the money to pay for what you owe.
You may also have other ideas on where to use the money, such as putting up a business or setting up a fundraiser.
It may pay for everything or partially, but cash-out finance can genuinely help you focus on a single type of loan. It will also be easier for you economically.
5. If the home is in arrears
Various life events can alter the capacity of a homeowner to pay the debt. Such events could be sickness, natural or manmade disasters, job loss, and more. They could have devastating effects that could make it difficult to meet financial obligations. If the home is in the state of arrears, they could seek the assistance of a non-conforming lender.
Non-conforming loans have higher interest rates. They are non-conforming because the borrowers who may seek them tend to have low credit scores. If you fall in this category, know that lenders who offer it will still need some proof of capacity that you can pay the money back. If you feel that you can take advantage of the opportunity, you can apply and check if you qualify for their current deals.
If your economic status has changed, whether it improved or not, mortgage lenders will be willing to work with you through refinancing. It offers a mutual benefit for you to keep your home and for them to keep receiving payments in terms that work for both parties.