With interest rates at all-time lows, you might have heard about taking advantage of this time as an opportunity to refinance your mortgage. This can be a good decision, although there are many factors you need to consider before doing so.
In this article, we’ll examine why it’s worth considering refinancing your mortgage when interest rates are low, as well as the pros and cons this could involve.
What Is Refinancing?
Refinancing refers to the process of transferring a home loan from one bank to another.
Here are several of the advantages refinancing a loan can offer you:
- Take advantage of another bank’s products, services, or cashback offers
- Secure terms when interest rates are at all-time lows
- Increase your short-term cash flow
- Build up an emergency fund
- Borrow money for renovations or investments
- Cash out your equity for vacations, weddings, or asset purchases
- Avoid putting all your eggs in one basket
- Switch from a non-bank lender to a mainstream bank
- Switch away from a bank offering a poor service
A common reason for refinancing a loan is to lock in a new mortgage at lower, more advantageous interest rates. This can reduce the total amount you repay over time.
You can also reduce the interest you face using debt consolidation. Cashing out the equity in your mortgage when interest rates are at all-time lows can allow you to repay short-term personal loans and credit cards, which often have very high interest rates.
If you can afford your current monthly payments, you could benefit from refinancing to a shorter term when interest rates drop. Your interest will have less time to accrue, which means that you will pay less for your loan over its lifespan.
Another reason to refinance a loan, is if you had bad credit and your credit rating has improved over time. You could end up with more preferable terms. This could end up saving you money in the long run, especially if you do refinance when interest rates are at all-time lows.
However, just because interest rates are at record lows, it not mean that you should automatically look at refinancing your mortgage. There are also costs and risks to consider before making such a significant financial decision.
The Costs Of Refinancing A Mortgage
Legal fees, early termination fees on a current loan, and new house valuation fees – these are just some of the financial costs you can run into when you choose to refinance a mortgage.
All these various fees mean that if you switch your mortgage for an interest rate that is only slightly lower than what you are currently paying, even when interest rates are at all-time lows, you could actually end up paying more out of pocket in the long run.
For this reason, if you’re considering refinancing your home loan, you must tally up all possible expenses to make sure that the benefits of switching really do outweigh the costs.
There are also situations where you aren’t likely to gain much from refinancing your mortgage. For instance, if you’re near the end of your mortgage term, you’re unlikely to see much benefit from refinancing your home loan, as these savings are usually accumulated over time.
As you can see, switching your home loan can be a big decision. That’s why, if you’re thinking about refinancing your mortgage because interest rates are at all-time lows, a Financial Advisor from Platinum Mortgages can help. We can assist you with weighing up the pros and cons of making a switch, so you end up with the best loan for your needs.
To learn more, please contact us at 0800 LENDING today.