Refinancing your home loan can be an extremely useful tool for consolidating debt or releasing equity in your home, but it can also have a major effect on your household budget. Refinancing could seriously affect how and where you spend your money. Here are a few things to consider to start you off on your new budget.
Re-evaluate long term financial goals
The very first thing you should do it re-evaluate where you want to be financially in a few years time. Refinancing can help reduce the effects of your mortgage on your lifelong goals by making the loan term shorter or the monthly repayments smaller, which in turn will affect how much capital you have to play with throughout the lifetime of the loan.
It might be time to take another look at when you retire, whether you move or not or if it’s time to expand your investments. Refinancing opens up these options by smoothing over your current mortgage.
Adjust monthly repayments
Depending on why you refinanced your loan, you may be finding yourself with far smaller monthly repayments. As a result, you’ll need to readjust your budget to take advantage of this retrieved capital – but don’t get lax in your financial behaviour just because you don’t have to pay off so much every month! Use that capital wisely in investments or savings instead.
Furthermore, you will have to look further ahead if you chose to take on a home loan that has an introductory rate. Variable home loans sometimes have this kind of deal attached, where your interest rate for the first few repayments is smaller – and once that period is up, your repayments will increase. Keep this in mind and factor it in accordingly.
Make additional repayments
There is also something to be said for paying off your debt as soon as possible. When you are paying compound interest on a mortgage, the longer you take you pay it off entirely, the more interest you pay overall.
So, when you’re refinancing your loan, you might find it prudent to find one that allows for additional repayments. Ask us about options in this regard. Additional repayments, while optional, can still be the solution to reducing your debt. So if you find yourself with a bit of spare cash, do yourself a favour and make an additional repayment.