Refinancing is an important step for most homeowners and investors, as it could mean thousands in interest savings.
There are many reasons why people choose to refinance, but for most, it’s all about securing the best deal possible for your circumstances. Reviewing your mortgage frequently will ensure that you stay on top of the available mortgage products and fluctuating property market.
If you have not assessed your mortgage in a while, have noticed a positive shift in interest rates, or are simply curious about the process, contact us today and we will talk with you about how to secure the best rate for your home loan. Don’t worry, we’re with you every step of the way!
The Most Common Reasons Why You May Want To Refinance A Home Loan
Refinance to take advantage of lower interest rates offered by your current lender, or a new one.
The property market is constantly fluctuating, with interest rates following the financial trends set by the Reserve Bank of Australia (RBA). In the past two years, for example, we have seen the official RBA cash rate drop by 1.4 per cent, and subsequently, home loan rates have been dramatically decreased. Make sure to review your current mortgage rate, because you may be paying a lot more than you have to.
Mortgage Repayment Amounts
By refinancing your loan with a lower rate, you can reduce the amount of interest you pay. Reducing monthly repayments means you will pay less over the life of your loan.
If you have had your loan for over a year, then you may be on an uncompetitive interest rate.
For example, if you had a mortgage of $500,000 and were on a 3.75% interest rate, your monthly repayments would be around $2,315. If you were to refinance to a cheaper rate of 3%, those monthly repayments would reduce to $2,108, saving you $207 per month.
But that’s not all! If you were to reduce your interest rate by 0.75%, your total amount of interest paid would also decrease, meaning you could save $74,721 over the life of the loan.
On the other side of this, you may be able to afford higher monthly repayments, and could therefore refinance to a shorter loan term. Reducing your loan term from 30 to 20 years would help you pay off your loan faster, and subsequently save thousands on interest payments over the life of the loan.
Loan and Product Type
If you are on a variable rate and are wanting to lock in a good interest rate, adding a fixed term to your loan would allow you to secure that good rate.
If your fixed term is coming to an end, you will be automatically switched to a variable rate, and you may want to consider refinancing back to a fixed rate to secure a lower interest.
Property prices in Australia have historically trended upward, meaning you may be able to access a better rate if your property’s value has increased.
For example, if you bought your home for $500,000 and borrowed $450,000, but the property’s value has increased to $600,000, you home equity would have increased by 15%. This means lenders would offer more competitive rates to try to secure your loan with them, which means you get a reduced interest cost and can pay off your loan faster!
Another great benefit to refinancing is the opportunity to consolidate your debts into a single, and more affordable, payment. The advantage of doing this is that generally you would pay a much lower interest rate on a mortgage than on other debts, such as Personal Loans, Car Loans or Credit Cards. A debt consolidation is where your home loan is replaced with a new one and the increased portion is used to pay out your other debts.
It can be a good idea for those who are paying a high-interest rate on multiple debts, just make sure you consider the new loan term and the total interest cost after consolidation.
If you are considering renovating or investing, you may be able to source funds from your home. A ‘cash-out’ refinance allows you to sue the equity from your property to borrow money at a lower cost.
Using the same example from earlier, say your home is worth $600,000 and you have $450,000 left on your mortgage. This would mean you have $150,000 in equity, which you could refinance to turn $30,000 of it into a home loan, bringing your total lending to $480,000.
Using a cash-out for renovations on your home can have even greater benefit. For example, if your planned renovations are expected to increase your property value from $600,000 to $700,000 you could then increase the lending to $560,000, meaning an additional lending of $110,000 can go towards your renovations.
If you are still unsure about whether refinancing is right for you, talk to us today and we will be happy to help you!
We can get a better understanding of your exact situation and advise on whether refinancing is the right path for you. If it is not, we will set you up with a plan going forward, so you are more confident in your financial situation.
Use the form below to get in touch, and we will call you to discuss your options further.