Good Reasons  to Refinance a Home Loan

Mortgages are never easy to obtain and most lenders make you go through hoops to secure home finance. On that basis, you might be forgiven for wondering why on earth you would want to go through that process all over again. The good news is that there are some seriously smart reasons to consider refinancing your home and in this article, we are going to examine a few of them.

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Buying a home is one of the most expensive purchases you will ever make. You can easily end up in debt to the tune of several hundred thousand dollars, so this is definitely not a purchase you should rush into. But once you have sorted out your finances, saved up for a deposit and found a suitable property, you are home dry. Or at least that’s the idea.

Sometimes, life gets in the way and things change. The house you thought was perfect turns out to be too small because one baby turned into three. Or you lost your job and needed to reduce your outgoings. Whatever the reason, here are some instances where refinancing your home is sensible.

Switch to a Better Deal

Mortgage deals come and go, so the deal you secured when you first took out your home loan is unlikely to be the best deal available right now. If your current deal is coming to an end, now is a good time to start checking out what’s on offer. This will give you a chance to source the best loan for your current situation.

Your Home Has Risen in Value

If your home has risen sharply in value, this is very good news.  It means your loan is a much smaller percentage of the property value, so you may be eligible for much better deals. Most lenders have different tiers of mortgage offers. Buyers looking for 95-100% mortgages will typically pay more interest than buyers who only want to borrow 50% of the property’s value. Take advantage of this and secure a better deal.

Lock in a Low Interest Rate

If interest rates have fallen or you want the security of a fixed repayment for two to five years, refinance and lock in a low interest rate. Interest rates are currently very low, but there is no guarantee they will stay that way. Buyers on a variable rate mortgage deal are most at risk, as their monthly repayments could rise if interest rates shoot up. Do you really want to take that risk?

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Borrow Cash Cheaply

Refinancing is a good way to release equity in a property. You can use the extra money to fund home improvements or pay for a nice holiday. You could also use the extra cash to help pay for your child’s college education. Refinancing at a low interest rate is always going to be cheaper than borrowing on a credit card.

Consolidate Debts

Do you owe money on credit cards and personal loans? If so, you could be paying out a lot of money every month. This will reduce the amount of disposable income you have to play with, and if you are in a lot of debt, put you under pressure financially. Refinancing is a useful way of releasing capital tied up in your property. You will still have to pay interest on any money you borrow, but it will be at a more affordable rate of interest.

Once you have a mortgage, in theory it is a bit less stressful searching for a lender to offer you a refinance mortgage. After all, you are a known quantity, so lenders can see you haven’t missed a payment and therefore you are low risk. However, it is still worth shopping around for a competitive product. Your existing lender will undoubtedly offer you some good deals, but don’t assume they are the best ones for you. Sticking with an existing lender is less hassle for sure, but always check the deals available from other lenders, as they may throw in extras such as free legal fees.

One final point to remember before refinancing on a home loan is the issue of early redemption penalties. If you are currently locked into a discounted or fixed mortgage deal, remember that you may have to pay a financial penalty for exiting early. This could be anything from a fixed payment to several years’ worth of interest. Read the small print on your mortgage offer or ask your current lender for a settlement figure to find out.