When Should I Refinance My Mortgage?

Thinking of mortgage refinancing? Be sure that your decision is timed for maximum financial benefit and peace of mind.

These days, the spectrum of options available to anyone making the refinance home loan decision is mind-blowingly diverse. The 64 million dollar question is: when to take the plunge? It is essential that any homeowner who decides to go through mortgage refinancing is confident that their choice will be of maximum financial benefit.

License: Creative Commons image source
License: Creative Commons image source

What is home loan refinancing?

When undertaking the refinance home loan process, the homeowner decides to set up a new loan. This might be with the financial institution with whom they are currently obligated, or with another party altogether. Whatever the case, the new refinancing home loan agreement replaces the old one, along with any of its associated financial liabilities.

The motivations for a mortgage refinance vary from individual to individual, and from situation to situation, as do the factors that determine appropriate timing. Motivations might include the desire to access a lower interest rate, the decision to swap to a different type of rate (from variable to fixed, for example), and the desire to use equity.

Home loan refinancing to lower interest rates and reduce terms

There’s no argument that a lower interest rate is appealing to the vast majority of homeowners considering going down the home loan refinance path. After all, why wouldn’t one want to maximise the benefit of every hour of hard work? It means spending less money – both on a monthly basis and in the long run. It also means that equity tends to increase more quickly, and it can also present the chance to shorten the overall term of a loan. Generally speaking, the opportunity to reduce an interest rate by a minimum of 1% is a good reason to consider the refinance home loan option.

Variable or fixed?

There are arguments for both variable and fixed rates for mortgages. To an extent, the refinance mortgage decision depends a little on the conditions that governed the loan when it was initially established, and the ways in which the economic climate has altered since then. Northpoint Mortgage reminds us that it is common practice for individuals who took on their loan according to a fixed-rate set up might be advised to make a refinance home loan decision if interest rates are decreasing consistently, and are predicted to continue doing so.

On the other hand, if an individual commenced his or her loan on a variable rate, only to see interest rates increase, then he or she might consider a refinancing mortgage to access the savings available via an attractive fixed rate.

Holidays? Renovations? Education?

Some people decide to go through the refinance home loan process because they have an important need for extra money. A hectic schedule can make a vacation seem rather tempting; a child might be about to commence an expensive tertiary education; the house might need a new kitchen or bathroom. These are good reasons for considering mortgage refinancing, as long as the decision to access equity is a safe and well-considered one, rather than one made impulsively or irresponsibly. It’s crucial to work with a lender who is trustworthy and ethical, and is willing to provide sensible, customer-oriented advice.

Finally, it can be a good idea to make the refinance home loan choice if one’s current financial institution fails to provide helpful service. Peace of mind is often best achieved by interacting with a lender who genuinely places the client’s best interests at the centre of operations.

About the Author: Sam Nathan is a freelance writer. His interests include finance, sports, travel and health.

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