Should You Refinance Your Home Loan?

April 17, 2012 by  Filed under: Loans 

With home loan interest rates changing so often, it can be hard to tell when a loan should be refinanced for a better rate. Though a mortgage’s interest rate makes a big difference in the amount you will pay each month and how much the total spent on the home will be, a small reduction in rates may not be worth paying the fees required of a new loan.

To find out when the rates have dipped low enough to make the venture worthwhile, check an online rate comparison site periodically to see what various banks are offering. When there is a rate low enough, apply quickly before the rates change again.

Changing Loan Types

Sometimes, the reason behind the refinance isn’t just the rate- it’s the type of loan you have. If you have a variable rate and want to switch to a fixed-rate Australian home loan, refinancing can give you the terms you want. Many people find a fixed-rate loan preferable because mortgage payments are the same each month for the entire life of the loan. This can protect your mortgage against future rate hikes.

Refinancing for a Shorter Loan

A long-term loan comes with a smaller monthly payment than a shorter one, making long-term mortgages attractive to young home buyers. However, some homeowners find in later years that they no longer wish to pay more over the life of the loan in exchange for lower payments. If you want to pay off the loan faster, you can choose to refinance to a shorter-term loan. Refinancing five years into a 30-year mortgage and changing to a 10-year loan saves 15 years of loan payments and likely tens of thousands of dollars in interest over the life of the loan.

Paying Fees for Your Refinance

Though there are fees associated with refinancing your home loan, they may be lower than you imagine. Remember that if you have built some equity in your home, the amount you borrow will be lower than the original amount borrowed. This means lower fees than you paid the first time around.

In many cases the fees you can expect to pay will be about 3 to 6 percent of your loan amount. This includes application and underwriting fees as well as title search insurance, the cost of a survey and other assorted expenses. If the refinance will be for a similar loan period as the original mortgage and the interest rates isn’t significantly lower, the fees may take away any savings you may have had. However, if your home loan refinance will save you a significant amount each month or it is for a shorter loan period, you may find that refinancing your loan is a smart financial decision.

Tomorrow Finance offers home loan comparison software to help people compare hundreds of home loans from Australia’s lenders. Find out how much you can save simply by choosing a loan with the best home loan rates.

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