’Tis the Season to Refinance Your Mortgage?
It’s the most wonderful time of the year. With most of us making lists and checking them twice, now may be a great time to look for ways to increase your holiday budget. In this article, we explore how refinancing your home can help boost your savings for the holidays.
Savvy homeowners know that refinancing is one of the most flexible and powerful approaches for reducing the total payments on a loan and creating a convenient payback structure.
A study published in the Elsevier Journal of Financial Economics 122 found that homeowners who fail to refinance during times of lower interest rates invariably lose on substantial savings.
According to the National Bureau of Economic Research working paper, this can be due to several reasons:
- Lack of information about refinancing opportunities
- The inability to properly evaluate options they do know about
- Mistrust of the financial sector
Benefits of Refinancing Your Mortgage: Taking Years Off Your Loan
Despite all of the reasons for missing out on refinancing this season, it’s worth looking at the reasons why people need to take advantage of refinancing.
Gain peace of mind
Refinancing your home loan can help to get your Christmas preparations in order. But more importantly, it helps get your financial life back on track. Refinancing into a payment system that fits your needs can give you the all-important peace of mind that you need to achieve financial freedom in the new year.
Access to a lower interest rate
You are not stuck at the same interest rate for the entirety of your loan, especially if you have shown responsibility during the term of your loan. Refinancing gives you the option to reduce your monthly repayments through a lower interest rate.
This is something that you should definitely look into if you have improved your personal credit score since the beginning of your loan term.
A refinance in December not only means having extra cash for end-of-year expenses, but can also unlock your cash flow so you can accelerate towards financial freedom in the new year.
Pay off your mortgage faster
Refinancing your loan can help you pay off your loan more quickly. The more quickly you pay off your loan, the more likely you are to pay less as well. Interest needs time to accumulate. If you don’t give it time, then you reduce your total payout.
Refinancing a mortgage can unlock value in your home that you can draw on for other investments you want to make. If your home is worth more than you owe, then you can borrow more money than it takes to pay off the loan.
That extra money, known as equity, can be used to deck your halls with the Christmas cheer, or better yet, save it in a bank account for future use.
Consolidates credit cards, personal loans, or other debts into a lower rate loan
In most cases, the interest rate on a home loan is much lower than the interest rate on credit cards or personal loans. Lenders consider personal loans much riskier — hence, the higher interest rate. However, you may have the opportunity to roll your other debts into your mortgage, assuming the lower interest rate for all of those debts.
The Best Time to Refinance Your Mortgage
This festive season, avoid being a Scrooge. It’s wise to understand your finances and consider your options — so you get to give more and be more! So when is it a good time to refinance your mortgage? Let’s take a look.
- The interest rate is not competitive. If your lender has an interest rate that is not competitive in the current market, then you are losing money! Take advantage of the competition in this market to get a lower interest rate and monthly repayments.
- RBA might raise the interest rate soon. The RBA has set interest rates at extraordinarily low rates, but the glad tidings might come to an end. Eventually, those rates will come up. When they do, the window for getting low monthly payments will close.
- You have job security. If you can show that you are a stable borrower over time, you become less of a risk to your lender. One of the best ways to show stability is job security. You can use your position for the last 12 months as leverage to get a good rate on your refinancing.
’Tis the Season to Be Merry
As we approach the festive season and the new year, we wish you, our dear readers, happiness and prosperity. May you truly enjoy the yuletide spirit with friends and family — without racking up your holiday debts!
If you want to know how to save money from your home loan and start building your wealth through property, you might want to consider refinancing your home. Speak with an adviser at Shore Financial to understand your options and guide you towards the right lender and the right loan product for your situation.
Disclaimer: This is general information only and should not be taken as financial advice. Please speak to a Shore financial planning professional before making a decision on your home loan.