Refinancing could save you thousands – and give you greater flexibility
It’s often said that Australians are more likely to divorce their spouse than switch banks. But with plenty of competition in the home loan sector and the ability to find a much cheaper home loan, refinancing can be a good move.
There are a number of reasons why you might want to refinance: you can consolidate debt from high-interest credit cards into a cheap home loan with a lower rate of interest; you can release cash from your home loan equity for other major purchases like renovations; or you might want to simply save on your repayments by moving to a loan with a lower interest rate.
What’s my rate?
If you aren’t 100% sure exactly much you’re paying, how can you find a better deal?
Luckily, finding out your interest rate can be as simple as logging on to your bank’s online banking portal and checking the account information for your home loan.
What do I need?
Make a shopping list of the features you want in a new loan. These might include:
Just a cheaper home loan with a lower interest rate.
Variable rate or fixed rate: a fixed rate gives you more certainty over the longer term; a variable rate can save you money when the market is down, but it fluctuates with the market.
Offset account: cash in hand can be offset against your loan balance until you need to spend it, potentially saving interest. E.g. If you have $400,000 owing on your home loan and have $100,000 in cash that you keep in your offset account you will only be pay interest on $300,000.
Repayment flexibility: Extra repayment flexibility is a great way to pay off your Home Loan sooner, by using a Home Loan extra repayments calculator you will get a better understanding of how powerful adding that little bit extra into your home loan every month can save you years of repayments.
What’s on offer?
A good broker will be able to help you choose the type of loan you want, how much you want to borrow and what extra features you need, then compare loans from many different lenders, with information on interest rates and fees and charges. This can help you weigh up the costs and benefits of each loan.
They’ll do all the legwork for you, providing you with a list of solutions that cater to your particular financial needs, getting rid of any confusion and hassles throughout the process.
Check out the costs of getting out – and getting in
If you took out your loan before 30 June 2011, the lender might be able to charge you an exit fee for terminating early. And if you’re on a fixed rate mortgage, you might have to pay a break fee.
There may also be establishment fees for the new mortgages you’re considering, and you may find yourself paying higher ongoing fees, sometimes called administration fees. Some lenders also charge a fee each time you redraw on your loan.
The best thing to do is speak with your broker, as they’ll be able to advise you of any and all fees that are involved.
Do the maths
Use an online home loan repayments calculator to work out what the repayments will be for different loan amounts at different interest rates.
Compare the fees and charges, too – these can add up and may offset any interest rate savings over the life of the loan.
At the end of the day, a good broker is able to guide you through the entire refinancing process, from start to finish. They have in-depth knowledge and understanding of mortgages and will help you get the best possible outcome.