How to Make Your Refinanced Home Loan Work for You

October 12, 2017


On average, borrowers switch to a new loan with the same lender every 3.5 years and they refinance to a new loan with a different lender about every 6.2 years. This means, over the life of your mortgage, it wouldn’t be unusual for you to refinance more than five times. With switching loans being an integral part of having a mortgage, it’s in your best interest to learn how to refinance like a pro. Find out what you can do to get the most out of your new home loan every time you refinance, whether this is your first time or your tenth.

Determine Your Refinancing Goals

What do you want out of your new loan? If you don’t define your goals, you may not get what you expect. Some people walk into the refinancing process hoping to take advantage of lower rates or to reduce their monthly repayments. But, you should run through your current and projected financial needs to make sure your mortgage will offer you what you need. For example:

  • Do you need access to equity? Consider switching to a line of credit loan.
  • Have your credit card balances gotten out of control? Include enough money when you refinance to consolidate your debts.
  • Are you likely to earn more in a couple years? Make sure your loan has features like a free offset account so you can reduce the amount you’ll have to pay in interest.
  • Are you at a point where you need consistent repayments? Maybe you should refinance to a fixed rate home loan.

Pay Attention to the Loan Term

When shopping around for possible loans, you want to evaluate more than just the interest rate. The loan term has a huge impact on how much you’ll pay in interest over the course of your loan but it may be downplayed by your lender.

Watch out for loans that offer a better rate but draw you into a longer mortgage. By saving a couple hundred a month on your repayments, you may end up adding tens of thousands in interest over the course of a 20 or 30-year loan. When you are only going to save a few thousand from refinancing, minus your refinancing costs, those monthly savings aren’t really worth it.

This is unless you are having trouble meeting your repayments and need more room in your budget to avoid going into arrears. In this case, the extra interest paid over a long period of time may be worth it.

Look at interest rates, the term, and compare fees. It may take some calculations but when you look at the true difference from one loan to the next you may be surprised at which loan product is actually your best option.

Consider Staying with Your Lender

You may be able to save money and get a great refinancing deal if you stay with your current lender. This is because you’ll be able to skip some of the refinancing costs such as exit fees. Also, your existing lender may be willing to give you a competitive loan to entice you to stay with them. It’s worth finding out what you can get if you don’t change lenders.

Ask the Professionals for Help

There is a lot of money at stake when you refinance. Working with a mortgage broker and seeking guidance from a specialist, your financial advisor, your accountant or other professionals can help you make a better-informed decision. The more you know, the more likely you are going to benefit. And, you’ll have learned more for when you do choose to refinance.

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