Let's say you borrow $400,000 (that's close to the Australian average mortgage) with a variable rate of 4.00% p.a. and a 30-year loan term. Your repayments would be around $1,909 a month. But if you changed home loans to a more competitive rate of 3.05%, your monthly repayments would drop down to around $1,697. That’s a saving of $212 per month. Over the course of 30 years, you’d save $76,320.
What is refinancing?
Refinancing simply means switching from one home loan to another. You can switch loans with your current lender or get a new product with a new lender. The main purpose of refinancing is usually to get a lower interest rate to save on repayments. But you can also switch to a mortgage with more features, or move from an investment loan to an owner-occupier loan. Some borrowers refinance to unlock equity in their property.
Why should I refinance?
Switching can save you money, but there are far more benefits than simple savings. You should look switching mortgages to:
Get a lower interest rate. The lower your rate, the lower your repayments and rates in Australia are very competitive right now. If you haven't looked at your home loan in a few years you might be surprised to learn how much you're paying. Compare rates in the table above and see just how much you could be saving.
Unlock more features. Features like additional repayments, a redraw facility, portability and offset accounts can help you save on interest repayments. They give you more flexibility and let you get more out of your mortgage.
Unlock equity. If you've been paying off your loan for a while this money is called equity. And you can access it through a line of credit home loan in order to purchase another property, renovate your home or buy a car. Refinancing in this way can save you money on other purchases (a mortgage typically has a lower rate than a car loan, for example) but adding to your home loan means you're paying it off longer.
Consolidate your debts. Juggling a few debts can be hard. Debt consolidation lets you roll your existing debts into a single manageable loan. If done correctly, you can save on fees and reduce the amount of interest payable by combining your debt into a single repayment with a competitive rate. It's important to work closely with your lender during this period to ensure that you actually save money in the process.
Take advantage of a special offer. Many home loans will offer cash incentives or sign-up bonuses all year round to borrowers who switch. These offers are especially prevalent during the spring "mortgage season". Cashback incentives are usually around the $1,000 mark but can be as high as $2,000. These offers can be a great way to minimise the costs of changing loans, but be sure that the loan you’re applying for still has a competitive rate, fees and features so that once the cash is gone you’re not left with an uncompetitive loan.
Call today on 1300 861 143 to chat about how we can help you.
Your Choice Mortgage Brokers Pty Ltd atf Halo Innovation Trust trading as Heart Mortgage Services - Australian Credit Licence 38643
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