Maximising Your Savings: Consider Refinancing Your Home Equity Loan

By: Aaron Robbins0 comments

There any many reasons why borrowers refinance loans. One of the primary motivators, whether it’s a personal loan or an existing mortgage, is to save money. Some people don’t realise that you can refinance a home equity loan, just as you can with most other forms of finance.

We step through how you can maximise your savings by refinancing your home equity loan, with Diverse Funding Solutions.

Why refinance home equity loan?

The current cost-of-living crisis has many households looking for ways to reduce their budget or increase their savings. Many business owners like to access home equity loans in order to release equity in their home or investment property in order to free up their household cash flow, make home improvements or invest back into their business.

The road to financial efficiency doesn’t need to end there, though. With interest rates on the move, you may be considering whether to borrow additional funds, or refinance at a potentially lower interest rate to save money.

Lowering your monthly payments

It may go without saying that by refinancing your home equity loan to a new home equity loan with a better interest rate, your monthly payments will be less, therefore helping free up space in an inevitably tight budget.

Changing loan term

Depending on the loan amount and length of the original loan, you may choose to refinance your home equity loan to change the loan term. Meaning you can extend out your repayments, which could potentially soften your outgoings each month.

Switching to a fixed rate loan

Depending on the existing loan that you have in place, you could refinance to lock in a fixed rate loan if you’re currently on an adjustable rate. The Reserve Bank of Australia (RBA) recently effected it’s 11th rate rise to the cash target rate. By locking in a more attractive interest rate, you could not only save money now, but also mitigate any risk of rising interest rates affecting your monthly payments.

Accessing further funds

With real estate in Australia still booming, chances are that even though your household or business expenditure may have risen lately, so too will your property’s market value. Releasing equity that has built in your property’s value can not only help you boost your savings, but potentially improve your family or business cash flow.

Debt Consolidation

Combining multiple debts (including credit cards and personal loans) into your home equity loans can mean less loan repayments and potentially simply your budget while maximising your savings.

Cash out refinance vs refinancing home equity loans

One option that many mortgage holders consider when looking to refinance, is whether to perform a cash out refinance or simply refinance their home equity loan.

A cash out refinance is considered a first mortgage, this means that you would take on a new loan that encompasses the total balance of your existing mortgage plus the home equity loan balance. While this may seem an easy option, it does however mean that you are potentially paying off the home equity loan balance for a much longer period than a home equity loan term (meaning you could pay significantly more in interest charges in the long run).

A home equity loan is a second home loan, not a first mortgage, meaning that you continue to pay your current mortgage plus the home equity loan separately. A cash out refinance is considered a first mortgage.

Good to know: If you paid LMI (lender’s mortgage insurance) on your mortgage, you may not be able to transfer that to any new home loans (which a cash out refinance is considered to be).

How to refinance a home equity loan

The first step to refinancing your home equity loan is to understand how much equity is currently sitting in your property value. By performing a property valuation, you can get an accurate gauge as to how much equity you have. Having your property valued by a professional valuer will naturally come at a small cost, however lenders require valuations for most refinance applications, therefore, by understanding your current value, you can identify whether you have enough equity to take out a new loan before a loan application is in place.

At Diverse Funding Solutions, we can offer up to 80% of the usable equity in your home to secure a home equity loan.

Before you borrow to refinance your home equity loan, consider:

  • What the new loan repayments will be and how they fit into your budget moving forward.
  • The prospective lender’s policy and whether you meet the borrowing conditions.
  • The total borrowing costs, including exit fees from the existing home equity loan. Closing costs can also apply, depending on the loan type.
  • If you’re using a new lender, what the minimum amount of equity is required before you can secure a home equity loan.
  • Remember that borrowing as business owner or for an investment property could mean that your interest charges and other lending fees may be tax deductible.
  • Whether the lender accept extra repayments. Making additional repayments when you can build further equity in your home and potentially build opportunity for further lending down the track.

Refinancing with Australia’s top private lenders

At Diverse Funding Solutions, we have access to over 200 of Australia’s top private lenders, which means that we can match you with the best home equity lender for your refinancing goals. Most lenders will make you wait around for weeks before handing down a decision, whereas we can have an approval in as little as 48 hours. More importantly, we don’t need you to jump through the same home loan hoops as traditional lenders. By working with you, we can devise an exit strategy and repayment schedule that fits your unique financial situation, without needing to rely on your credit history.

To understand more about how Diverse Funding Solutions can help you refinance your home equity loan and maximise your savings, contact the team today — we are available to help you no matter where you’re located.

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