If your family has outgrown your home or your circumstances have changed, you may want to consider refinancing your current home loan.
Regardless, it’s always a good idea to review your home loan from time to time to ensure it still suits your needs. Here are three reasons why you may choose to refinance and how it could help you.
1. Renovate your home
Perhaps your kitchen needs an upgrade or the kids would like a playroom – a renovation can make you feel like you’re in a brand new home. You may be able to finance a renovation by borrowing against the equity in your home, applying for an additional advance on your existing loan or changing to another lender that lets you borrow more. If you're not quite sure how to calculate your equity, click on this article to learn more about it.
When you’re working out how much you’ll need to refinance for the renovation, it’s important you don’t overcapitalise. For example, if your new kitchen costs $20,000 but only adds $10,000 to the value of your home, you’ll overcapitalise by $10,000. A local real estate agent can give you an idea of how much value the renovation will add to your home. You may also need to factor in the cost (and hassle) of moving out while work is being completed. Creating a budget before you begin the work will help you keep on top of the costs. Here are five steps to help you work out your budget.
2. Consolidate multiple debts
If you're paying off a few debts with high interest rates, like a credit card or personal loan, it may make sense to consolidate them all into your home loan. This means the equity in your home is used to secure the additional debt. Consolidating debts into one simple loan can help you save on paying multiple interest payments and fees, making it easier to budget and manage your finances. More on the benefits of debt consolidation here. Speak to a mortgage broker or financial adviser to determine if this strategy is appropriate for your personal circumstances.
3. Switch between variable and fixed home loan rates
With interest rates changing regularly, reviewing your home loan from time to time for a better deal may be a good idea. While a fixed rate loan can make budgeting easier, it is generally less flexible compared to a variable rate loan. Apart from not being able to benefit from a rate decrease, fixed rate loans don't give you access to extra features such as redraw or being able to make extra repayments on your loan. Both variable and fixed home loan rates have their own pros and cons but what is important is making sure it's right for your situation.
If you want to get the best of both worlds, you may consider splitting your loan when you refinance, paying part variable and part fixed interest rates.
When it comes to refinancing there are many options available to you. Being aware of all the fees and charges you might have to pay to refinance your loan will help you make an informed decision. If you are thinking of refinancing, it’s a good idea to consult your mortgage broker, accountant or financial adviser before making any concrete plans.
Want to know more about Pepper’s refinancing options? Call one of our Lending Specialists on 13 73 77 or enquire online. Alternatively, if you'd like to find out how much you can borrow, start by using our handy borrowing power calculator here.
All applications are subject to Pepper's normal credit assessment and loan suitability criteria. Terms, conditions, fees and charges apply.
This article provides you with factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77 or speak to an accredited Pepper Money broker.
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