Almost every Australian who is chasing that dream of home ownership, wonders from time to time how they can get onto a cheaper more cost effective interest rate. This thought can be triggered by hearing or seeing a TV or radio advertisement or even through a conversation with a friend who has a ripper of a rate on their home loan. This might get you to think how can I do this and what options do I actually have, this is where talking to an experienced mortgage broker will be able to have a look over your situation and provide you with the most appropriate advice on what your options are.
When is a good time to refinance?
As life doesn’t always go to plan and with that can come significant changes; you might have a young family, a new partner with marriage in the near future or even a new job that pays a bit more to which you might find yourself in a position where you have access to surplus cash funds. If you do find yourself in this position and wish to pay extra off your home loan but only to find your current loan will not allow you to pay additional funds, this is worth engaging the conversation with your mortgage broker to find out what alternate options are out there suitable to your situation.
Generally if you are able to refinance your home loan to a new loan product with a sharper rate on offer and less fees, providing you were to pay more than the minimum required amount of repayments each month this will shave years off of your home loan and not to mention the amount of money you will save on interest repayments.
Ways you can make the process work for you
Some of the things you might be able to consider talking to your mortgage broker about doing is the following:
- Offset Account: By having an offset account set up correctly this can be a great strategy to reduce your home loan amount and overall loan term, however you need to have financial discipline to make it work for you. Without financial discipline in place this will outweigh the effectiveness of the exercise.
- Extra repayments: Any extra repayments you are able to make on top of your regular repayments will save money by reducing the total amount of interest payable over the total loan term and if you have a redraw facility set up this will allow you to access any extra funds should you need to.
- Loan Split: Don’t hesitate to ask your broker about a partial fix and partial variable interest rate loan. A loan split will allow you to manage some of the risks of interest rate rises while still being able to make extra repayments. There’s no rules to say how you should split the loan the decision is up to you and how you want the loans structured, alternatively your brokercan give you advice on the best way to set up the loan splits if you are unsure.
- Debt Consolidation: Consolidating your existing loans into a single facility on your home can potentially help you save thousands and help you pay off your loans sooner. Not all lenders will let you consolidate debts and there are certain lenders which specialise in this type of finance.
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 look at their options to refinance their home loan so they engaged with the services of a mortgage broker. 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 a substantial amount of money over a new loan term with new lender and loan product.
|· 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:
· New proposed total loan term:
· Total time saved on the home loan:
· 21.8 years
· 8.2 years
As you can see above with the comparison of lenders and interest rates on offer, by refinancing your outstanding home loan from lender A to lender B you will be $380 better off each month. If you keep making the same amount of repayments you were making on your previous loan you will be able to shave 8 years and 2 months off the new 30 year loan term, check out our extra repayments calculator to see how much you can potentially save off your home loan.
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 and will be able to determine if you will actually save in the long run, and provide you with your options of what is actually beneficial to you. If you have any questions about refinancing or to find out the options available to you don’t hesitate to talk to your mortgage broker Gerry and he will be able to assist with answering any questions.