SA Home Loans: There are times when it make sense to refinance you home loan like when you are lowering your interest rate enough to make a noteworthy difference in your mortgage payments or when you significantly decreases your loan term.
Another benefit is you need to consolidate your debt to improve cash flow. However, do not make the mistake of converting short term debt into long term debt. Rather keep the repayment short so that you can derive the maximum benefit from refinancing.
You have to carefully consider if refinancing your home loan will be beneficial to you not just in the short term, but over the long term too.
One mistake that a lot of people make is that instead of making refinancing a once off event , they apply for a refinance loan every time there is a little bit of equity available.
Some think that if they consolidate some of their high interest debt in the process that they’re basically debt free. However, except for decreasing your equity each time you refinance you are also increasing your home loan debt.
Instead of paying off your mortgage debt you have increased your loan term. If you refinance too often, although your monthly payments may go down it will cost you a lot of money over the long term.
Keep in mind that in the beginning of your home loan the largest part of your payment goes toward interest and not towards the reducing your capital. So, if you refinance too often you’ll end up paying the maximum interest for a very long time.
If you want to protect your equity use it as wisely as possible.
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