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What is refinancing a home?

Refinancing a property is when you take out a new home loan to repay your existing mortgage. People usually choose to do this due to a change in financial situation, or to take advantage of better interest terms or rates.

What are the benefits to refinancing your home?

There are many advantages to refinancing a property, which is why it’s such a popular option. If you’re not happy with your existing interest rate, it allows you to switch to another one. This can add up to serious savings over the course of a mortgage. It can also allow you to change your mortgage term, so that you can potentially pay off your home loan sooner and become debt-free. Not only that, but it can also allow you to access existing equity in your home to purchase another property.

What are the downsides to refinancing a mortgage?

As well as a range of benefits, refinancing also comes with its disadvantages. Firstly, it can be a time-consuming process, due to the administration involved in exiting your mortgage and applying for a new one. There can also be a range of costs involved, including the application, valuation and mortgage discharge fees which can quickly add up. Fixed interest rates can also be misleading, in that they can fluctuate in the time between approval and settlement meaning that you might not lock in a better rate after all.

What questions should you ask when refinancing a mortgage?

There are a few questions you should ask if you’re thinking of refinancing. When it comes to your existing lender, you should ask if they have a waiting period before you can refinance, what exit fees are involved in refinancing, and if they have another package with a more competitive interest rate you can switch to. As for a potential new lender, you should ask whether their fixed interest rates have a lock in period, what fees are involved in applying and what requirements they have for refinancing.

When should you not refinance your home?

If you have less than 20% equity in your home, have a poor credit score and aren’t able to quickly recoup the costs involved in refinancing, you may want to think twice about refinancing your home loan at this point in time.

When is refinancing a good idea?

Refinancing can be a good idea if you already have considerable equity in your home, are looking at purchasing another property or are unhappy with your current home loan and have researched more competitive rates. You’ll also want to make sure you’re in strong financial standing with a good credit score.

Can you get a home equity loan without refinancing?

A home equity loan is different to refinancing in that you’re taking out a line of credit against your existing equity. You will be making repayments in addition to your mortgage, whereas refinancing means you’re replacing an existing mortgage with a new one. You do not need to refinance in order to get a home equity loan.