Should You Consider Refinancing Your Home?
If you have ever thought about a new mortgage to reduce repayments and interest or if you’ve needed cash for a large purchase, then you may like to refinance your home.
Put simply, refinancing is the process of securing a new mortgage to replace a current mortgage. Refinancing can provide some great benefits, such as decreased interest rates, equity access and debt consolidation. But, like most finance options, there are pros and cons which need to be considered beforehand. If you don’t have the right information available to you, then refinancing might actually do more harm than good – it could increase your interest rate rather than lower it.
Reduced interest rates
A key advantage of refinancing is the reduction of interest rates. If you have maintained a stable income and an ability to pay your bills on time, then you’re likely to have a strong credit score. This allows you to secure loans at lower rates, which can significantly decrease monthly repayments. For this reason, many people refinance with their mortgage provider. It’s also worth considering the types of interest available. It may be advantageous to move from a variable to a fixed interest rate, or vice versa, dependent on your circumstances.
Taking equity out of property
You might also refinance for the purpose of using equity in your home. The value of a house increases as the property market or the condition of the home improves (through renovations and other improvements). This means you can use the increased value for various purposes. This process will involve a property valuation. You must then decide how much equity you would like to use. After the money is used to pay off the original mortgage, the remaining balance up to a certain limit is available for you to use as equity elsewhere, such as a holiday, school fees or an investment.
What are the risks of refinancing?
There are also potential risks and costs associated with refinancing which should be considered.
- Firstly, paying down an existing mortgage typically incurs a fee (if fixed) which can be worth thousands. A financial professional can help you handle the paperwork and ensure that you are getting the best deal.
- Refinancing should only be seriously considered if there is a benefit to doing so.
- A refinance solution is also dependent on your income – you may not be able to obtain a straight refinance if your income has decreased since you initially commenced your mortgage.
Above all, ensure that you have taken time to assess whether or not refinancing is an appropriate and beneficial decision for your situation. For more information about whether or not refinancing is a good choice for you, get in contact with the experienced team at Provide Finance.