Refinancing - what is it?

Everyone talks about refinancing. They say, “you should refinance to get on a lower rate?” Okay, makes sense. But what does this actually mean.

Refinancing is simple. This is what it means. You have a current loan with Bank X. Bank X is charging you 4% interest. You don’t want to pay 4% interest. You move your loan to Bank Y who is charging you 3%. This is refinancing; moving your loan from one Bank to another Bank.

The main reason people refinance is to get a lower rate. After all, why give the bank more money than you should.

There are other reasons to refinance:

• You want to extract equity from your property. Your current bank isn’t willing to do this, so you move to a bank that will.

• Your current bank doesn’t suit your goals anymore. You may want to knock down the house and renovate or subdivide. You move to a bank who will let you do this.

• You want to diversity your range of bank. After all, you shouldn’t have all your eggs in one basket.

• You may want to fix your rate or move to an Interest Only option. You move to a bank who will let you do this.