A low cash rate has prompted many homeowners to consider refinancing their current loans to decrease the amount of interest they are paying and improve loan terms.
Decreased interest rates are a good reason to refinance, but paying the loan off more quickly and using the equity in your home to invest elsewhere are other great incentives.
An improved home loan
As a general rule, when the cash rate drops, so do the amounts homeowners pay on their home repayments.
However, it is worth having a look at the other loan options open to you. Some now come with additional features such as offset accounts and can provide more flexibility to your home loan, so refinancing can allow you to take advantage of new features you might not be getting.
Pay loan off faster
By decreasing the interest you pay on your loan, you reduce the amount you have to pay in the long run. However, since rates are subject to change, it may be worth talking to a professional before locking yourself into a fixed rate or variable loan.
Some home loan providers also allow for unlimited extra repayments, which means that you can pay off a little or a lot extra in the short run to help reduce the lifespan of your loan.
Another option is to shorten the term of the loan. This means you pay more in the short term, so ensure you can afford the increased payments if you decide to go down this route.
Use equity to make other purchases
The advantage of owning your own home is that you can use the equity to cover big ticket items such as renovating or making home improvements.
Changing to a more flexible loan may mean you can take payments out to pay suppliers.
Rather than paying off personal or car loans on top of your home loan, it might be worth consolidating so you can settle your debt at the lower rate.
Generally, home loans have a lower rate of interest than personal loans so you might end up paying less.
If you are looking at this option, it may be worthwhile talking to a professional as there are a few other factors to take into account.