6 Benefits of Refinancing Your Home Loan in 2022
Refinancing is one of the ideal methods to refresh your home loan and get a deal that best suits your current situation. Refinancing your home loan can be defined as changing your existing loan for a new one. In many cases, the change happens with a new bank.
There are two primary reasons people look to refinance their home loans. It is either to get a better rate or to increase their existing loan so as to withdraw home equity. You can refinance your home loan from any lender or bank of your choice, and it does not necessarily have to be your existing lender.
Recently, banks have not been rewarding loyalty. And in many cases, lenders are found to offer better deals to new customers, instead of rewarding their existing ones.
There are certain benefits you get from refinancing your home loan. Let us examine those benefits.
6 Benefits of Refinancing Your Home Loan In 2022
Refinancing Can Help You Lock In a Fixed Interest Rate
With interest rates on the track to rising in 2022, it is a smart move to refinance to a fixed-rate mortgage.
The benefit of a fixed interest rate is that you will not need to worry about interest rate fluctuations, as your rate will remain constant during your fixed term. This also means budgeting will become easier, since you will be aware of how much you owe per month.
However, fixing your interest rate does not have a certain flexibility, as you will likely be unable to make unlimited extra repayments or access some loan features such as redraw facilities and offset accounts.
Thus, if you are craving some of the flexible elements of a variable-rate mortgage but still desire some stability, you can consider getting a split-rate home loan. This means a portion of your loan will be charged interest at a fixed rate, while the other portion will have a variable interest rate.
Refinancing Adapts to Your Changing Lifestyle and Finances
There is a probability that your personal and financial circumstances have changed since you first secured your home loan. These changes could be having children, increased or decreased income, need for a smaller or larger home, or changed financial priorities and goals.
Any of these changes could negatively or positively impact your ability to repay your home loan, and this is where refinancing comes to your aid.
For instance, if you have an increased income, refinancing can help you increase your minimum repayment amount. After all, the faster you pay off your loan, the less interest you will have to pay overall.
Consolidation of Debts
Managing the repayments of your home loan can be stressful enough as it is, but it can become even more difficult if you have to bother about repaying other debts also.
If you are willing to streamline your finances, debt consolidation helps a great deal. It allows you to combine all personal loans, car loans, and credit card debts into just one monthly repayment along with your home loan.
Also, your consolidated debt will have the same interest rate as your home loan. Interest rates of home loans are generally lower than expected rates on both credit cards and unsecured debts.
Refinancing Gives a Lower Rate
When you refinance, it helps you get a reduced interest rate. It is a great idea to be informed on what rates your lender is giving to new customers so that if your rate is higher than those new rates, you will be able to get in touch with your lender and negotiate to have a lower interest rate.
However, you do not need to be scared to look elsewhere. Lenders are generally known to not always reward loyal customers, so if you can get a better deal with another lender, it could be worth it to switch.
To make things easier for you, there are home loan comparison websites that can give you an overview of the home loan interest rate options available on the market.
Refinancing Allows You to Switch Lenders
When you decide to refinance, you get the privilege to switch your lender to another. Several reasons can be behind your wish to switch lenders. They include the following but are not limited to them. They are:
- Poor communication.
- High fees.
- Dissatisfaction with customer service.
- Ethical reasons (that is, the desire to switch to a lender whose values are in closer alignment with yours).
- Inflexibility regarding making repayments.
It does not matter how good your home deal may be. If you are not satisfied with the level of service your lender offers, it is enough to be a deal-breaker.
Refinancing Helps to Access Equity
You build equity when you pay down your home loan amount with a regular principal and interest repayment. Equity, which is also affected by the value of your property, outrightly indicates the proportion of your property value.
Equity is usually calculated by subtracting your home loan balance from your property market value. For instance, if you have a home valued at $500,000 with a $250,000 loan balance, you have an equity of $250,000 or 50%. Refinancing makes you get a home equity loan, which then grants you access to your equity.
Apart from property-related expenses, you can decide to tap into your equity for several purposes, which include:
- Property maintenance
- Paying off other debts
- Significant expenses (like holiday expenses or a new car)
- Purchase of another property
Renovation of your home can increase the value of your home, which will eventually boost your equity.
Refinancing: Yea or Nay?
Although there are benefits attached to refinancing your home loan in 2022, you need to keep in mind that there are costs that will be required to complete the whole application and process.
Moreover, the refinancing process is similar to the original mortgage loan process in some ways, though it is much easier and faster for some borrowers. Nevertheless, the process can take a few days, a month, or even more, depending on your home, financial situation, and the type of loan involved.
Hence, before you decide to take up the refinancing process, plan your timeline accordingly.