Posted by Henry | HOME OWNERSHIP,MORTGAGES | Saturday 25 October 2014 10:41 am

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Wish you could pay your mortgage off more quickly?

Are you scared by the thought of being stuck on the same repayment schedule for the next three decades?

Whether you have a mortgage, or are just about to sign, it doesn’t have to feel like you are signing your life away. With some smart financial planning, it’s possible to cut your 30-year mortgage in half.

Understanding mortgage refinancing

Mortgage refinancing is when you choose a new home loan plan – which may have a lower rate and greater flexibility – to replace the mortgage you already have. By refinancing your existing home loan you could save money and slash your repayment amount by hundreds, which adds up to huge savings over the years.

Shortening your mortgage’s term

Typically, the best time to refinance your home is when interest rates have fallen, or when your income circumstances have improved enough to make you eligible for a lower interest rate.

Lower rates offer the opportunity to save on the amount of interest you pay over the term of your home loan. By switching to another home loan yet continuing to contribute the same monthly repayment you can cut the life of your home loan drastically. For example, if you decided to refinance on a $200,000 loan that you took out at 9 per cent 5 years ago, to a loan with the rate of 5.5 per cent (based on current averages), you could cut your 30 year term in half.

If you haven’t assessed your mortgage in quite some time it’s worth investigating your loan details and interest rates to see if you can take advantage of current low interest rates.

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Hidden costs of refinancing

There are also a few hidden costs that you need to take into account, such as application or appraisal fees. Your new loan provider may also want your property surveyed for any structural or pest problems before agreeing to refinance your home.

It’s also essential that you check the fine print of your current mortgage, as some loans carry penalties if you decide to pay your loan off early.

The pros and cons of changing your terms

While refinancing your home loan can give you the opportunity to take advantage of low interest rates – and any changes to your personal circumstances that make you a better prospect for lenders – it’s not necessarily the best choice for all home owners.

Refinancing your home comes with costs so it’s important that you assess your financial situation and calculate the total cost of your loan before making any decisions for the long term.

If you can afford to up your monthly payments and have the chance to lower the interest on your loan, refinancing could be a useful option.

Henry Sapiecha

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