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[MoreMore Insights] What is Refinance

Updated: Mar 23, 2023


What is Refinance?


Refinance is the process of replacing a current loan with a new one. Usually the purpose of refinance is to effectively seek to make favourable changes to interest rates, loan limit etc. Borrowers often choose to refinance when there is a significant change in the interest rate environment, to obtain the potential savings on debt payments from a new agreement.



How Refinance Works?


Borrowers often seek to refinance debts to obtain more favourable borrowing terms. Common objective of refinance is to reduce the interest rate so to reduce payments over the life of the loan; increase the loan limit, or cash out; change the term of the loan; or to switch from a fixed to a variable interest rate, or vice versa. Borrowers may also refinance their debts because their credit standing has improved, long-term financial plans have changed, or by consolidating existing debts into one. In order to achieve refinance goals, borrowers must lodge a loan application to a financial institution, and the financial institution will need to assess the application based on borrower's overall situation.


For example, if you had a $800,000 home loan with big four banks three years ago, your current rate would be around 5.5%, and interest charge every month is around $3,666. But if your property value increases from 1mil to 1.2mil, and you can refinance 80% LVR and get $160,000 cash out, and also get a better interest rate. If you get the new rate of 5.04%, then the monthly interest charge will be $3,360, which saves you $300 per month.



Pros of Refinance


-Lower monthly loan payments and better interest rates;


-To pay off the mortgage sooner;


-Might get cash back offer from new lenders;


-Adjustable interest rates, switching between fixed and variable rates;


-Access to cashout to meet other investment needs;


-Debt Consolidation;


-If you are self employed, then you might get access to 100% LVR business loans from some lenders.


Questions about refinance? Contact your professional mortgage brokers at MoreMore Finance and get a free consultation.

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