Refinancing entails repaying your current home loan with a newer one. This could be with a new lender or a current lender, and it could be for a number of reasons.
The refinancing process is comparable to the application process for your original loan, and hence refinancing can take four-eight weeks on average. After all, the process will vary depending on your specific scenario, and some lenders may even be able to provide a quick refinancing. In this section, we will look at the refinancing procedure and how long it can take to refinance your house loan.
- Save money
In today’s market, no homeowner can stand to believe that their loan is a fair deal. If you have held your mortgage for a few years, there is a good possibility you may save money. You may be eligible for more savings than you anticipate by achieving a lower interest rate and lowering your mortgage repayments. One of the most compelling reasons to refinancing is to lower the interest rate on your current loan. Historically, it has been assumed that refinancing is a good option if you can cut your interest rate by at least 2%. Conversely, many lenders believe that a 1% savings is a sufficient incentive to refinance. Lowering your interest rate not only saves you money, but it also accelerates the pace at which you create equity on your property and can shrink the amount of your monthly payment.
For example, a 20-year fixed-rate mortgage with a 5% interest rate on a $200,000 home has a monthly principal and interest payment of $1,056. But y our payment would be $970 if you refinanced your loan at 4%. The greatest immediate advantage of refinancing is that it allows cash-strapped borrowers to find room in their monthly budget. This could be useful if you anticipate an increase in your cost of living (for example, if you are expecting a baby) or if your income has reduced (from dropped hours or lost job).
- Pay off your mortgage sooner
By refinancing to a lower interest rate, you reduce your overall interest payments and, as a result, your overall mortgage sum. In many instances, borrowers wish to refinance in order to reduce the duration of their existing loan from 25 years to 15 years. Based on the rate of interest you qualify for, this may only have a minor impact on your monthly budget while helping you pay off your mortgage quicker. It is important to understand that it does not have to take 25 or 30 years to pay off a mortgage.
- Equity to fund purchases or lifestyle goals
Refinancing is frequently utilised to open up equity in your current property to finance purchases or lifestyle ambitions. Gaining access to equity, for example, could assist you in purchasing an investment property, renovating, or building, among other things. The amount of equity you may use varies by lender, which is why having a home loan specialist on your side can make all the difference when it comes to doing the paperwork. When you refinance, you can also utilise some of the money from your home’s worth to pay for additional expenses: reinvesting that money in other properties or sending their children to college or something like in those lines.
- Debt consolidation
Homeowners frequently use the equity in their houses to finance large bills such as a home renovation or a child’s higher education. These homeowners may explain the refinancing by claiming that renovations increase the value of the home or that the interest rate on the mortgage loan is lower than the interest rate on borrowed money from some other source. Through the process of ‘debt consolidation,’ refinancing your house loan can provide an opportunity to consolidate your debt and perhaps reduce the overall interest you are paying on several debts. It entails consolidating many high-interest debts into a single lower-interest debt – which may be your home loan – and may result in a cheaper overall monthly repayment.
- Bring on better loan features
Several Kiwi homeowners may have mortgages that are inappropriate for their needs or have “bells and whistles” that are underutilised. Having the correct resources can save you a lot of time in the long term, so it is worth receiving professional advice on how to grasp the various loan options available and how you can benefit from them.
Get professional advice
Everyone’s circumstance is different, which is why it is important to seek expert assistance while looking for a refinancing solution that is right for you. Our mortgage broker is up to date on what is available in the market and the benefits of various loan options. So, if you are seeking a low-interest rate to cut your mortgage repayments, or if your financial position has changed and you are ready for an overall home loan health check, contact us and get your financial health back on track.