Other possible reasons to refinance

Although refinancing can save you money, it can also help you find a mortgage/financing structure that is more suited to your current and future needs.

The following are some other possible reasons why you may consider re-financing:

You need extra cash and want to take advantage of the fact that your house has gone up in value.

Even with recent slips, many people's houses have gone up in value since they bought them. Refinancing can help you take advantage of this. Say you borrowed $500,000 to buy a house for $550,000. If that house is now worth $750,000, then if you were to refinance your mortgage, that $250,000 growth is like extra cash in your pocket. Your Loan to Value (LVR) ratio has now decreased, which means the ratio of what you own versus what you owe has improved.

You want to make extra repayments but your home loan won't allow it

If you've had a pay rise or inherited some money, for example, it may be prudent to use this money to reduce your mortgage. Switching to a loan which allows you to extra repayments without a penalty could prove beneficial in the long run.

You need to be able to miss a payment

Maybe you've decided on a career change or overseas travel. Whatever the reason, there are mortgages which will allow you to take repayment "holidays".

Your financial situation has changed

Since you first took out your loan, you are struggling with the repayments. Extending the length of your mortgage, and thereby reducing repayments, is one way to take the pressure off. Keep in mind, however, that overall your loan will cost more.

You want to consolidate your debts

Adding outstanding debts to your home loan can mean you will enjoy a lower interest rate on those debts, as home loan interest rates are generally lower than on personal loans, car loans and credit card debt. The real cost of borrowing is calculated based on both the interest rate charged and the length (term) of the loan. If your other debts are absorbed by your home loan and you don't pay them off as quickly as you would have otherwise, you will end up paying more overall. Another thing to consider is that you are securing this additional debt against your home. If, at some point in the future, you are unable to make your repayments, your house is at risk.

You want to add other borrowings to your mortgage

Adding non-housing debts to a mortgage, whether it's for a new kitchen, a holiday or consolidating existing borrowing, needs careful consideration. It can be a good move in many situations; for example if your loan permits you to make extra repayments, you can benefit from a lower interest rate, but only if you do pay off the extra debts rather than have them absorbed into the mortgage for the entire term of the loan.