Restructuring, part 1: reasons to restructure your home loan

Many home owners feel stuck in their current home loan. When debts pile up, meeting the monthly repayments can become stressful. If you’re feeling some financial pressure but don’t want to move out of your current home, it can pay to have a think about home loan restructure.

You can choose between internal (sticking with your current lender) or external (switching to another lender) refinancing. In part one of this three part series, we look at why you’d want to consider either of these options.

One of the main reasons you may want to restructure your home loan is to unlock equity (the difference between your home’s current value and what you owe). Restructuring to a lower interest rate could increase your savings each week. You can use the extra cash for any number of things. For example, you could renovate your home and increase its value, upgrade your family car, or take a well-deserved holiday. Alternatively, you can use the funds to invest in the share market. Whatever your personal goals are, having some extra cash in hand is never a bad thing.

2. Manage your debts

You may also consider home loan restructure as a solution to managing your debts. Through what is known as “debt consolidation”, you can bundle credit card, car and other existing debts with your home loan. This will place all of these debts under the one lower interest rate.

It’s important to get professional advice from a financial adviser before you do this though. The establishment fees for refinancing could outweigh your eventual savings (we’ll talk more about this in part two).

3. Boost your consumer power

Who doesn’t love a bargain? You may not be ready to make a big purchase or have much in the way of debt, but everyone wants to know they’re getting the best value for their money. Looking into your existing home loan on a regular basis and considering how it could be improved might save you a lot in the long run.

Telling your existing lender that you’re shopping around for other home loans might encourage them to offer you something better. Alternatively, you can simply make the switch to another lender who offers you more convenient or economical terms. You might be able to take advantage of a lower interest rate or a decrease in your mortgage repayments. Even a tiny drop can make a big difference over time.

Another lender may also offer benefits that your current lender doesn’t provide, such as flexible repayments (the ability to make extra repayments without any additional costs) or a redraw facility (the ability to withdraw any additional repayments you’ve made on your loan).

4. An alternative to downsizing

You may decide to restructure your home loan instead of downsizing. Friends and family members may be encouraging you to move into a smaller, more economical property after your kids have all left home. However, if you love your neighbourhood and property and simply want to save some money, restructuring could be a viable option. The extra savings you accumulate can be put towards those things you want to do, while still leaving the window open for a downsize in the future.

There are plenty of reasons you might consider restructuring. However, there are many things to consider before you make a final decision. In part two of this series, we’ll have a look at the costs involved. Don’t forget that speaking to one of our fully licensed and qualified mortgage advisers is completely free. They’ll be able to give you a home loan health check and help you weigh up different alternatives.