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What is Refinancing? Benefits and Drawbacks
What is refinancing and what are the benefits and drawbacks?
Refinancing a loan involves replacing an existing loan with a new one, typically to take advantage of better terms or interest rates. This process can apply to various types of loans, including mortgages, auto loans, personal loans, and student loans.
Benefits of Refinancing the home loan
The benefits of refinancing your home loan are not just limited to saving you hundreds in monthly mortgage repayments.

Refinancing a home loan can offer several benefits to homeowners, helping them improve their financial situation and better manage their mortgage.

By making the right choices and working with a mortgage broker, you can take a giant leap towards achieving your long-term financial goals.

Here are the key benefits of refinancing a home loan:

Lower Interest Rates
Get a cheaper interest rate and lower your monthly repayments.
  • Reduced Monthly Payments: By securing a lower interest rate, borrowers can reduce their monthly mortgage payments, leading to immediate savings.
  • Savings Over the Loan Term: Lower interest rates can result in significant savings over the life of the loan, reducing the total amount paid in interest.
  • Increasing the borrowing capacity for the next loan: By reducing your interest rate and repayment you will have higher borrowing capacity for your next loan.
Better Loan Terms
  • Switching Loan Types: Homeowners can switch from a variable-rate mortgage to a fixed-rate mortgage for more predictable payments, or vice versa, depending on their financial goals and market conditions.
  • Shortening Loan Term: Refinancing to a shorter loan term (e.g., from 30 years to 15 years) can help homeowners pay off their mortgage faster and save on interest, though monthly payments may increase.
Access to Home Equity
Access equity to buy an investment property, renovate, build and more.
  • Cash-Out Refinancing: Homeowners can refinance their mortgage to access the equity built up in their home, which can be used for home improvements, debt consolidation, or other major expenses.
  • Improved Cash Flow: Accessing home equity through refinancing can provide liquidity for other investments or financial needs.
Debt Consolidation
Bring your high-interest debts like credit cards, personal loans and car loans into a debt consolidation home loan.
  • Combining Debts: Refinancing can allow homeowners to consolidate higher-interest debts, such as credit card debt or personal loans, into a single, lower-interest mortgage payment.
  • Simplified Payments: Consolidating multiple debts into one mortgage payment can simplify financial management and reduce overall interest costs.
Improved Loan Features
  • Flexible Repayment Options: Refinancing can offer access to loan features that better suit the homeowner’s current needs, such as offset accounts, redraw facilities, or interest-only repayment options.
  • Avoiding Fees and Charges: By switching lenders, homeowners can avoid ongoing fees or charges associated with their current loan.
Removing Lenders Mortgage Insurance (LMI)
  • Equity Growth: If the property value has increased or the loan has been significantly paid down, refinancing might eliminate the need for LMI if the loan-to-value ratio (LVR) drops below 80%.
Improved Credit Terms
Refinance from a specialist lender back to a major lender after you’re past your bad credit issues.
  • Better Credit Score: If a homeowner’s credit score has improved since the original loan was taken out, they might qualify for better loan terms and interest rates.
  • Reduced Financial Stress: Refinancing can help manage and reduce financial stress by securing more favorable loan conditions.
Taking Advantage of Market Conditions
  • Market Opportunities: Homeowners can refinance to take advantage of favorable market conditions, such as lower interest rates or changes in lending policies.
Save Your Property If Your Home Loan Is In Arrears
Major life events such as injury, illness, job loss or the death of a loved one can prevent you from meeting your financial commitments. Refinancing is a solution that can actually save people from losing their homes if their home loan is in arrears.
Potential Tax Benefits
If you refinance to access the equity in your home and use those funds to invest in property, shares or other wealth-building opportunities, you may be able to take advantage of negative gearing and depreciation benefits.

Please note that it is recommended that you speak to a tax professional to find out exactly how many deductions you will be allowed.

You may benefit from Cash back offer
Banks occasionally offer a cashback if you refinance with them. The eligibility criteria differ from bank to bank but are based on your loan amount and maximum LVR. Note that a bank may change or withdraw its cashback offer at any given time, so it is important to be up to date about offers available in the market while making your refinancing plans.
Potential Drawbacks of Refinancing
  • Closing Costs: Refinancing involves upfront costs, which need to be weighed against potential savings.
  • Extended Loan Term: Extending the loan term can result in paying more interest over time, even with lower monthly payments.
  • Qualification Requirements: You must qualify for the new loan, which can be challenging if your financial situation has worsened.
  • Impact on Credit: Refinancing can temporarily lower your credit score due to the hard inquiry and the new account opening.
We can help you refinance to a more competitive rate, unlock your equity, get you the best cashback offers, and help you achieve your financial goals. Speak to us about the benefits of refinancing. Call 0415 571 893 or fill in our free online enquiry form today.
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