22 Dec 4 Great Reasons To Refinance Your Mortgage
Many homeowners only really think about mortgage refinancing when their fixed loan term is coming to an end. But there are a few other instances when mortgage refinancing makes good financial sense. Read on to find out four great reasons to refinance your mortgage.
1. Increase your home loan to consolidate debts
Meeting financial obligations can be a challenge at the best of times, and even more so in the current economic climate, as many Kiwis are already struggling with rising inflation and cost of living. If you have multiple high-interest debts, such as credit card and buy-now-pay-later debts, consolidating these debts into your mortgage could help you take back control of your finances. This could involve either increasing the balance on your existing mortgage (a home loan top-up), or refinancing to a different home loan. By consolidating your debts into your home loan, you only need to make one regular repayment and can take advantage of mortgage interest rates, which are usually much lower than rates of credit cards, personal loans and most other types of finance. If you are considering rolling your other debts into your mortgage, talk to one of our experienced Mortgage Advisers at Max Mortgages to help you navigate through the process and find the solution that best suits your circumstances and needs.
2. Reduce monthly repayments
In some situations – such as when interest rates rise and monthly repayments go up – some homeowners consider mortgage refinancing to a longer loan term as a way of easing the financial pressure they may be experiencing. Extending a loan term – for example from 15 years to 30 years – effectively gives homeowners more time to pay back the home loan with lower monthly repayments spread out over the loan term.
However, switching to a longer loan term could mean the borrower will pay more interest charges over the life of the home loan, and can end up paying a much higher mortgage overall. Before deciding to refinance a mortgage to a longer loan term, evaluate whether this really is the best solution for your situation, and calculate how much more your mortgage will cost.
3. Pay off your home loan sooner
Refinancing from a 30-year home loan to a 25-, 20- or even 15-year home loan lets you pay off your loan much sooner. For borrowers who can afford a higher monthly repayment, mortgage refinancing to a shorter home loan term could be an option. A shorter loan term will increase the monthly mortgage repayments but reduce the total amount paid for the mortgage over time.
A mortgage refinance to a shorter loan term may be feasible if you have enough money coming in each month to cover your everyday bills with some cash to spare. However, failing to meet your mortgage repayments can harm your credit score and put you at risk of losing your home, so it’s important you can afford the larger repayments before switching to a shorter loan term.
4. Refinance to access funds for major expenses
Mortgage refinancing is a way to access the equity built up in a property without having to sell the property to release the equity. Equity is defined as the difference between what your home is currently worth and what you owe on your mortgage. Depending on your financial situation and the type of home loan you have, you may be able to access up to 80 per cent of the value of your property and use the cash for other purposes – such as buying an investment property, a boat or car, renovating your home, or paying for a family holiday.
You could even use the equity in your home to cover unexpected expenses, like medical procedures, unforeseen bills, or house repairs. However, it’s worth exploring other financial options, such as emergency loans, to take care of unexpected costs when you don’t have enough money saved up.
Is it time to refinance
For more advice and guidance around mortgage refinancing – including when to refinance and how much it costs – get in touch with a Mortgage Adviser at Max Mortgages. Along with answering your questions about home loans and mortgage refinancing, our team of experts can help you find the right home loan NZ wide to suit you and your situation.
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