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Home loan guide / Refinancing

The different types of refinance loans

3 min read

Caitlyn Smith

Refinancing your home loan isn’t a one-size-fits-all process. There are different ways to refinance depending on what you’re wanting to achieve.

Whether you’re wanting to take out more cash, put more cash in, or just consolidate the other debt you have, it’s important to make sure you’re doing the right thing for your financial situation.

Rate-and-term refinance

A rate-and-term refinance is the most common form of refinancing. The purpose of a rate-and-term refinance is to change your interest rate and/or term of your home loan while keeping your loan amount the same (plus a little extra to cover the cost of refinancing). Perhaps you’re currently on a variable rate, but because interest rates have dropped, you decide to refinance to a lower 2 year fixed rate to lock it down and avoid rate rises. This would be an example of a rate-and-term refinance.

Cash-out refinance

This refinancing option is for when you want to borrow a little bit extra on top of your existing loan amount. To do this you convert or “liquidate” some of your home equity. Refinancing this way increases your home loan’s principal amount, but it gives you some extra cash on hand at the end of your refinance to put towards whatever you want (renovation, repairs, landscaping etc).

Cash-in refinance

If a cash-out refinance means you are taking more cash out for your new loan, it makes sense that a cash-in refinance means you are lowering your overall loan amount by contributing a lump sum amount. To do this you take out a new loan that is less than your old loan amount and pay whatever is left so the old loan can be closed. Cash-in refinances reduce your loan’s principal amount, can help you lower your new loan amount to get below a certain LVR (Loan to Value Ratio), and will result in reduced repayments.

Consolidation refinance

A consolidation refinance enables you to combine your debt and close separate lines of credit (credit cards, personal loans and car loans), turning them into one debt and one repayment. When you refinance your home loan, your new loan amount will include the total amount of the debt you want to consolidate as well as your current home loan balance. Your lender will pay off each line of credit you wish to consolidate, and will add this amount to the total of your new loan, along with the amount left on your old home loan. Debt consolidation works best if you get a loan that saves you money on repayments and/or fees – otherwise there’s not much point in doing it! Unfortunately Tic:Toc don’t currently offer this kind of refinance option, but you never know what the future holds.

Always come out on top

There are many different ways to refinance your home loan, so it’s important to consider your options carefully and make sure that refinancing means you’re left in a better position.

Find out how much you could save by switching to Tic:Toc by using our refinance calculator.

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