When you have a clear objective in mind for refinancing your mortgage, you're more likely to choose a loan that will help you meet your long and short term financial goals. Here are a few good reasons why homeowners refinance:

Refinance to Save

Even a small reduction in your Mortgage rate of interest can lower your mortgage repayments. If you don't refinance, you may be paying too much every month for your loan, and that's never a good financial move. There are a number of ways in which refinancing can help you save. The first is simply to refinance to a lower interest rate. This effectively lowers the cost of your mortgage and hence reduces your monthly repayments. Refinancing to take advantage of a lower rate of interest is a good idea in most cases. You can also change the term on your mortgage to lower your monthly re-payments. Switching from a 15 to a 30 year term can significantly reduce your mortgage repayment. This can be especially appealing when you are saving for a holiday, looking to buy a car, or are simply experiencing a temporary reduction in disposable income.

The same effect can be achieved by switching from a principal and interest loan to an interest only loan. Your monthly repayments are hence lowered, giving you some room to breathe. This is only a short-term solution though, as you need to make repayments of principal in order to reduce your mortgage. If you are more concerned with achieving long-term savings, then refinancing from a 30-year to a 15-year mortgage can save you thousands of dollars over the life of your loan. However in most cases this will also significantly increase your repayments and therefore is not always an affordable option.

Another method available is to alter the pattern of your mortgage repayments. You would be absolutely amazed by how much saving can be made by simply switching from a monthly mortgage repayment program to a fortnightly one. As a consequence of making more frequent repayments, your mortgage interest is calculated on a smaller balance each repayment period. Most lenders are promoting this as a quick and easy way to save years and thousands off your mortgage.

Refinance to Access Cash

Think of the equity in your home as a savings account that you could access through mortgage re-draws. You may want to finance an important home improvement that will increase the value of your home, pay for college or pay off high interest credit card debt (read below). Whatever your reason, this may be the right option for you.

Refinance to Consolidate your debts

The interest rates charged by lenders on unsecured personal loans and credit cards can often be significantly greater than the rates charged on your mortgage. Many Australians find themselves in financial trouble when their lifestyle debt accumulated on credit cards and personal loans is costing them more in monthly repayments than their home mortgage. Hence consolidating your other debts into your mortgage can be the answer. We have successfully helped many clients reduce their overall monthly loan repayments through debt consolidation.

Refinance for a change between a Variable Rate and a Fixed Rate Loan

Depending on the market assessment of the future direction of interest rates you may find that the current variable rate of interest is either lower or higher than the current fixed rate. Sometimes short term interest rate savings can be enjoyed by simply changing your loan from a fixed rate to a variable rate. Many people are uncomfortable in not knowing what their repayments will be like next year or the year after. One answer here is to refinance to a fixed rate loan, where your repayments will remain the same for the duration of the fixed rate period.

Refinance for Flexibility

Sometimes a Basic Variable Loan product simply does not offer the sort of flexibility that you would like to have with your home loan. Perhaps you have ‘out-grown’ your mortgage and would now like to take advantage of some of the more innovative mortgage features currently available such as:

• loan portability;
• loan offset accounts;
• multiple transaction accounts linked to your home loan;
• split loan facility etc.

Many clients choose to refinance their original home loan to have more flexibility. While a home loan which provides these features may cost marginally more in terms of it’s rate of interest – it’s flexibility often helps achieve savings in the long run.