A loan is the transfer of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money.
Understanding the Benefits and Limits of Mortgage Refinancing
Homeowners can reap numerous advantages by refinancing their mortgage, including lower monthly payments, an improved interest rate, or the ability to withdraw equity from their house. Many people do, however, ponder how frequently they can refinancing their mortgage.
How Often Can You Refinance?
The short answer is that there is no limit to how many times you can refinance your mortgage. As long as you have sufficient equity in your property, meet the lender’s qualifications, and are willing to pay the associated fees and costs, you can refinance your mortgage as often as you want.
Considering the Downsides of Frequent Refinancing
However, it is important to keep in mind that refinancing too frequently can have downsides. Each time you refinance, you will incur closing costs, which can add up to thousands of dollars. Some banks offer cash back bonuses to help cover these costs, but it’s important to make sure that the ongoing interest savings and any upfront cash back benefits outweigh the cost of leaving your existing bank. A good mortgage broker will be able to analyze this for you.
Evaluating the Costs and Benefits
Closing Costs: These costs can be significant and should be weighed against potential savings.
Cash Back Bonuses: Some banks offer bonuses to help cover costs, but it’s crucial to ensure that benefits outweigh the costs.
Interest Savings: Analyse if the ongoing interest savings justify the refinancing.
Staying vs. Switching: Assessing Your Options
In many cases, your existing bank may even offer you a discounted rate to stay, which can save you the disruption of having to move your financial life over to a new financial institution.
Generally speaking, as your property grows in value and your loan reduces in balance, banks will offer better rate discounts associated with your increased equity. You may also find that a change in purpose or structure, ie, changing from ‘Investment’ to ‘Owner Occupied’, or ‘Interest only’ to ‘Principal and interest’ repayments may also provide access to cheaper rates.
Factors Influencing Rates:
Property Value Growth: Banks may offer better rates as your property value increases.
Loan Balance Reduction: A decreased loan balance can lead to better rate discounts.
Change in Loan Purpose or Structure: Switching from ‘Investment’ to ‘Owner Occupied’ or ‘Interest Only’ to ‘Principal and Interest’ may offer cheaper rates.
Of course, rates and fees are very high on the list of considerations, but when selecting a loan product, it’s also very important to consider things like your lifestyle, spending habits, home cash flow management strategy, and ongoing wealth creation strategy. Setting up the right loan product can make a huge difference when it comes to cash flow, debt reduction, tax, and future borrowing power.
When selecting a loan product, it’s essential to consider your lifestyle, spending habits, home cash flow management strategy, and ongoing wealth creation strategy.
Key Considerations:
Cash Flow
Debt Reduction
Tax Implications
Future Borrowing Power
The Dynamic Nature of Banking and Property Markets
The reality is that the banking world and the property market are in a constant state of change, and if you’re like most people, your goals and financial position are also likely to change over time. For this reason, we recommend conducting a loan review with your mortgage broker at least every 2 years, or sooner if you experience a significant change to your home loan, your financial position, or your ongoing financial goals.
Conclusion: The Importance of Periodic Review
There is no set limit to how many times you can refinance your mortgage, but not reviewing your home loan product periodically can cost you money in the long run. Refinancing may not be the best option for you right now, but it costs nothing to reach out to your mortgage broker to review your current lending, compare the market and see if there are savings for you to take advantage of.