How refinancing your home loan could help get your finances into shape this January
Think you might need some help getting your finances back into shape after Christmas? Refinancing your home loan in the new year could be just the ticket.
Christmas is fast approaching, and there’s no denying that it’s an expensive time of year.
Could refinancing your mortgage in the new year help you manage your Christmas debt and increase your cash flow?
There are many reasons why you might consider refinancing your mortgage. Here are a few that might ring especially true as the silly season gets into full swing.
01. To get a lower interest rate
This is one of the best reasons to refinance. Interest rates have fallen dramatically this year, and even if your rate was the cheapest on the market when you took out your loan, there’s a good chance this is no longer the case.
Refinancing to get a lower interest rate means your repayments might be lower every month, leaving some extra cash in your pocket. You could use that money to pay off some Christmas debts to increase your day-to-day cash flow, or you could put it towards making extra repayments on your home loan so you can pay it off faster.
02. To unlock your home equity
Equity is the difference between the current market value of your home and the amount still owing on your mortgage. Refinancing can be a way to use the home equity you’ve built up to borrow more money at a lower rate. That can mean re-borrowing what you’ve already repaid, or if your home has increased in value, you could borrow more against the higher value. If you didn’t borrow the full amount available when you first took out the mortgage, you might be able to access more money by taking out a larger loan.
The extra money could be used to boost your cash flow or pay off your Yuletide spending, but there might be wiser ways to make use of it. Home equity is commonly used to fund renovations – perhaps you want to take advantage of the Government’s HomeBuilder grant, running until 31 March 2021. Or you might want to invest the additional cash in another property, shares, or managed funds.
03. To consolidate debt
If you have several debts with multiple sources, such as home loans, credit card debts, personal loans and other high interest loans, it can make sense to simplify your finances and roll these debts in with your mortgage. This can save you money because your home loan interest rate is usually lower than that of your other loans.
Once you’ve consolidated your debts, the trick is to then stay on top of them by making consistent extra repayments. Otherwise you’ll be paying off your consolidated credit card and personal loan debts for the next 30 years, making it harder to get ahead.
04. To make the switch from your fixed rate loan
If your fixed-rate loan term has recently ended or is due to expire in the next few months, now is the perfect time to consider refinancing.
When your fixed term ends, your loan rate will revert to a variable rate that could be more than double your original rate. Rather than limiting your options to the offers your current lender puts on the table, refinancing lets you shop around and choose your new loan (and interest rate) from a bigger pool. If you secure a new loan at a lower rate it could reduce your repayments and put extra cash in your wallet each month, just in time to pay off the Chrissy presents.
Is January a good time to refinance?
If Christmas and the summer holidays have hit your hip pocket hard, refinancing, used carefully, can be a valuable tool to bring debt under control or boost cash flow. With interest rates at historic lows, competition is hot in the mortgage market. Refinancing could allow you to take advantage of these record low-interest rates and save some money to put towards your festive debts.