When is restructuring a good idea?

Your mortgage is probably one of the biggest financial commitments of your life, and repayments are likely to be a significant part of your household’s outgoings each month.

But rather than simply letting your loan roll over each time it reaches the end of a fixed term, sometimes it makes sense to restructure, whether that’s to allow you to pay it off faster or to achieve another goal.

Below are some situations in which restructuring could be a good idea. 

You want to get debt-free faster

For lots of people, getting rid of a home loan is a major goal. If your income has increased since you took out your loan, you may be wondering whether there’s a way to tackle repaying yours more quickly.

There are lots of ways restructuring a loan can help with this. It might be that you increase your payments so you are on track to pay your loan off over a 15-year term rather than a 30-year one, for example. Or you might split it into bits and increase the repayments on some of the smaller loans, to pay them off more quickly. 

We can help you understand how these strategies might work, and what is likely to give you the best solution.

You’re concerned about interest rate movements

When it’s time to refix, it can be challenging to pick the right interest rate for you. If you like the look of a short-term rate, but worry about higher interest rates when it expires, you might choose to restructure your loan and split it. Splitting your loan means you can fix part of it for a longer period and part for a shorter one. This way, you’re less likely to be in a situation where your whole loan is exposed to a potentially higher rate.

You are moving

If you’re selling your house and buying another, you’ll either need to have your lender substitute the security on your loan, or refinance it to a new property. As mortgage advisers, alongside your lawyer, we can help you determine the most appropriate way to do this. Sometimes you may need an additional loan to cover any difference if the new home is more expensive.

You’re going through a rough patch financially

Circumstances change and repayments that were comfortable when you took out a home loan can become a bit more of a stretch. 

If you’ve hit a period where you expect to have a lower income for a while, or more commitments, you might need to restructure your home loan. This might mean a period on interest-only, or extending out your repayment term. We can help you to understand the overall implications of these decisions.

You can get rid of a low-equity premium

Did you take out a home loan when your equity in the property was less than 20 per cent? Then your lender may have added a low equity premium to the interest rate you pay, and you may also not have been able to access the advertised rates at the time. 

If you think your property has improved in value, or you’ve paid off enough of the loan to get you to 20 per cent equity, it’s worth asking your lender to reassess what you’re paying. You’ll usually need to provide an independent valuation to demonstrate the new value of your property.

Want to talk?

We can help you work out whether your current mortgage structure is delivering the right outcome for you. Whatever your mortgage question, get in touch today.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.