Do you currently have a mortgage and are chasing that dream of one day being debt free and owning your own home? There is no doubt that almost everyone who has a home loan loves the thought of the idea of going on a holiday to get out of the daily grind for a short period of time. Holidays are something that can be very rewarding but in reality will come at a cost so it pays to plan out what it is you are wanting to achieve and that will determine your best path on how to get there.
When in the initial stages of planning for a holiday, it is best to plan ahead and set yourself a goal for when this will take place. This can work to your advantage especially if you don’t have the cash funds readily available and this will allow you to set an achievable goal. Something you may need to consider and calculate is whether you have the ability to save the additional funds within the next say 12 months based on your current situation. If you believe this is not something you will be able to achieve within the desired time frame there are a number of options possibly available to you that you will be able to talk to your mortgage broker about. Your broker will be able to advise after the necessary research has been carried out whether a personal loan or a home loan refinance is actually achievable and if so which option is most suitable to your situation.
Home loan interest rates
Many people do not realise what their interest rate currently is and therefore do not realise they are actually paying a substantially higher rate on their home loan than what they are actually entitled to. If you are unsure of your current interest rate and monthly repayment you have to ask yourself, how do you know if there are cost effective alternatives out there. If you decide that you wish to talk to an experienced mortgage broker, prior to doing this log onto your internet banking or call up your home loan lender to find out your current interest rate as well as other loan account information. The benefit of talking to a broker about refinancing is they will be able to advise if there is a suitable and cost effective loan product for you. Many lenders will offer rebates for refinancing your home loan to them, which means in many cases the lender and loan product changeover doesn’t cost anything out of your pocket.
If this exercise is done correctly you will be able to make the most of this opportunity by using the difference in cost savings to cover or contribute towards the expense of your planned holiday. It is as simple as continuing to pay your original repayment amount onto the new home loan or placing the difference in cash funds into the offset account each repayment cycle therefore saving you on interest. A couple of ways this is able to be achieved is by accessing the additional available funds paid onto the home loan from a redraw facility or by having an offset account set up which can also be accessed at any time. The above options should be considered carefully and spoken about with your mortgage broker, alternatively your mortgage broker will be able to answer any questions you may have.
You may need to take into consideration how you will repay the debt incurred after the holiday has taken place because as the funds are taken out of redraw you will notice the loan amount rise potentially to the fully drawn amount and therefore no redraw funds available. This in turn will increase the total amount of interest charged each month, just like if the funds are used from the offset account the amount of interest charged will increase.
A couple who have been living in their own home for the last 4 years have decided the time has come they would like to go on a holiday. After talking with a local travel agent about what it is they wish to achieve, they were told the total cost was going to be $4500 based on the original plan. As the couple didn’t have the cash funds readily available they decided to talk to a broker about their options for applying for a personal loan. Once the broker looked over their situation they were able to see there was a cost effective home loan product suitable for the couple where they were able to refinance the current loan amount and have the ability to save the total amount of the holiday expense within a twelve month period, without any extra outlay of cash funds.
Please find the comparison of the two lenders below:
|· Lender:||· Current Lender A||· Proposed Lender B|
|· Loan Amount:||· $390,000||· $390,000|
|· Interest Rate:||· 5.24%||· 3.59%|
|· Monthly repayment:||· $2151||· $1771|
|· Repayment difference each month:||· + $380|
|· Total savings/extra repayments each year:||· + $4560|
As you can see above with the comparison of the two lenders and loan products on offer, by the couple refinancing their outstanding home loan from lender A to lender B they are actually $380 better off each month, which over a twelve month period works out to a total saving of $4560 compared to if they were to stay with their current lender.
There will be a number of pros and cons for refinancing between lenders each depending on one’s personal and current situation. If you engage with the services of a mortgage broker this will work in your favour as they will endeavour to find the most suitable option for your situation and be able to advise on the best way forward. If you have any queries or a question regarding specific information and what finance options are available to you, don’t hesitate to talk to your mortgage broker Gerry and he will be able to assist with answering any questions.