You don’t have to refinance your loan, and should only think about doing so if you’re satisfied that making changes to your loan is a good move for you. So there isn’t a set timetable for when you should refinance your home loan. If you do decide to refinance, it should be because refinancing will get you a home loan that better meets your needs.
1. If you believe a better interest rate is available. If the market situation has changed and interest rates now are lower than when you drew down your home loan, refinancing your home loan ount of interest you pay.
2. When your equity has increased. If your property has increased in value, the equity in your home may have increased too. You may be able to use the increased equity to negotiate better interest rates or loan terms. You may also be able to borrow against that equity to fund renovations, investments or other large expenses.
3. When your fixed loan home term or interest only term is expiring. When your fixed rate home loan term ends, your home loan usually switches to the standard variable interest rate, which may or may not be the best deal for you. If your fixed term is coming to an end, it may be a good time to review your home loan and explore your options.
4. If you’ve consistently been making repayments. This may put you in a good position to negotiate a better deal with your lender.
5. When you want to consolidate debt. If you have multiple loans or debts that have different interest rates, you may want to look into consolidating all your debts into your home loan. Home loan interest rates are generally lower than credit card or personal loan interest rates, and having just one repayment can make it easier to manage your budget.
How much equity do I need to refinance my home loan?
The amount of equity you have in your home is the difference between the value of your property and the amount owing on your home loan. For example, if your property is worth $750,000 and you have $250,000 owing on your home loan, then you have $500,000 equity.
Many home loans will fund up to 95% of the value of your home, which means you’ll need payday loans in Gambier OH a minimum of 5% equity to refinance. However, if you have equity which is less than a certain level (commonly 20%), you might have to pay Lenders Mortgage Insurance (LMI). LMI is insurance you pay for, but which protects the bank (not you) if you default on your loan and the money from selling your security property is not enough to repay your loan. If you have less than the required level of equity, you should talk to your lender about the cost of LMI when deciding whether or not to refinance.
As lenders use the amount of equity to assess risk, generally the more equity you have, the lower the risk of lending to you and the stronger your position.
How many times can I refinance my loan?
There’s no limit to how many times you can refinance your home loan. However, you might want to check if any waiting periods apply to your current loan, or if there are any fees or charges associated with ending or changing your existing loan.
The more important consideration is whether or not it makes sense to keep refinancing when you add up all the costs, such as early repayment costs (which can be substantial), loan approval fees and legal fees. Make sure that any savings you get from refinancing (such as lower repayments) will more than cover the costs of refinancing.