If you have had your loan for more than 12 months, then you may be on an uncompetitive interest rate.

By refinancing your loan you can also reduce the amount of interest you pay. Reducing monthly repayments ultimately means you will pay less over the life of your loan.

Example: Let’s say your current home loan interest rate is around 4.50%. You owe $500,000 on your mortgage and current repayment is $2,533 per month. You could look at refinancing your home loan to a cheaper lender who can offer an interest rate of 3.75%. Your monthly repayments would reduce down to $2,316 per month, reducing your repayment by $217 per month and saving $78,426 over the life of the loan!

Check out the Mortgage Repayment Calculator to test your numbers.

Broadly speaking, property prices in Australia have historically increased. If your property’s value has gotten a boost, you might be able to refinance and get a better rate. These days, banks give better interest rates to borrowers with more equity.

Example:  You bought your home for $500,000 and had a loan of $450,000 but the property’s value has since increased to $600,000. In this case, your home equity has increased from 10% to 25% and lenders will be more willing to give you larger discounts in order to win your business. Overall, reducing your interest costs and helping you pay off your loan faster!

It is very common in Australia to have a fixed rate term of between 1 to 5 years. When your fixed rate 'expires' at the end of that 1 to 5 year period your loan will change back to a variable rate.

However in most cases the bank’s standard variable rate doesn’t have any discounts! You can avoid this by switching to another fixed rate, or looking at your refinance options to maximise your interest rate discount.

For some people, changing the length of your loan term can help pay off your loan quicker. If you can afford higher monthly home loan payments, you could refinance to a shorter loan term. In this case, you could look at reducing your loan term from 30 years to 25 years helping you pay your home loan off faster, saving you literally tens of thousands of dollars in interest payments over the life of the loan.

Check out the Mortgage Repayment Calculator to test your numbers.

A cash-out refinance allows you to use the equity you have in your home to borrow money at a lower cost. You may want to invest these funds into shares or use it as a deposit towards a new investment property.

How exactly does increasing your loan work?

Using the example above, let’s say your house is today worth $600,000 and you have $450,000 left on your current mortgage. This means you have $150,000 in home equity. You could refinance to turn $30,000 of this equity into a home loan, bringing your total lending to $480,000.

You can potentially increase your loan above an 80% LVR (loan to value ratio) but you would need to pay lenders mortgage insurance, which can cost thousands of dollars.

Your mortgage broker can help you understand what these numbers look like and provide you with the best advice based on your scenario.

According to lenders, renovations usually fall into two categories;

• Simple renovations - like adding air-conditioning, solar panels or painting;
• Structural renovations - like adding an extra level to the house, a pool or new kitchen.
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SIMPLE RENOVATION
If you are doing a simple renovation, the numbers work exactly the same as taking cash out and you would rely on the equity in your home.

STRUCTURAL RENOVATION
With structural renovations, you can rely on the on completion value of the renovated property.

For example, if you are adding an extra bedroom and bathroom to the property - increasing the value of the home by an additional $100,000 - the bank can lend on this figure.

Using the previous example in Reason 2, if by adding an extra bathroom and bedroom increased the property’s value from $600,000 to $700,000 you could then increase the lending to $560,000 meaning additional lending of $110,000 can go towards your renovations.

Consolidating your loans can be handy in situations where you have high-interest rate loans and debts like credit cards, personal loans or car loans.

A debt consolidation refinance works in a similar way to a cash-out refinance, where an increased portion of the loan can be used to pay out other loans and debts. Your old home loan will be replaced by a new one that includes the amount you used to pay out those other debts.

Debt consolidation works well if you have lots of different credit cards and are paying very high-interest rates. The only downside when consolidating debts is to consider the new loan term and what the total interest costs will be after you have consolidated everything.

Your mortgage broker can help you understand what these numbers look like and provide you with the best advice based on your scenario.