Smart Refinancing Strategies

Smart Refinancing Strategies

Refinancing debt can free up cash flow by reducing commitments while enabling realistic debt reduction.

Refinancing for the sake of it may be counterproductive once set up and possible exit costs are taken into account.  It is, therefore, imperative that you have a clear strategy of what you want to achieve and why by refinancing.

Here are some smart refinancing strategies you can use to effectively manage your debt.

  • Consolidate multiple debts into one housing facility.  Housing finance is typically the cheapest form of finance available.  If you have other personal credit facilities like Personal Loans for Credit Cards, the interest rates are much higher.  If you have sufficient equity in your home you can use that equity to refinance the other credit facilities using home loan rates.

    If you choose to do this, you need to consider several strategies to make best use of the lower interest rates.
    – If you maintain your repayments at the existing overall level, you will substantially reduce the overall loan term and interest payments.
    – Utilise the savings made for other investments.
    – Splitting the new loan into different components.  This way you can structure your borrowing to clear personal expenditure debts like motor vehicle finance in a set time frame to enable future purchases.
  • Switching to a lower interest rate.  The housing market is highly competitive and there are many opportunities to refinance into a lower interest rate facility.  Refinancing can help in reducing monthly repayments and making substantial interest savings over the long term.  Bonus benefits of refinancing into new facilities include tapping into home loan features that may not have been available when you first organised your home finance.
  • Unlocking existing equity.  When utilised properly existing equity in your home can be used to build wealth.  Typically existing equity I a residential property is used to fund investment or housing renovations.  Both strategies can help to build your overall wealth.
  • Moving from Low Doc Loans to Full Doc loans.   Low Doc loans are a great way for self employed borrowers in particular to enter the housing market.  However, the cost of these facilities can be comparatively high.  If you are able to provide financial statements and demonstrate your financial stability you may be able to refinance into a lower cost facility

When investigating your refinance options you should take the following points into consideration.

  • The amount of equity that you have in your property, which is determined by the value of your property.
  • The costs associated with refinancing and paying out your existing loans
  • The potential savings that can be made through refinancing
  • Potential new flexibility offered by new features of a new facility

If you need assistance with working out your refinance options feel free to contact the team at Australian Finance Hub