Refinancing your mortgage means swapping out your existing home loan for a new one. It’s one of the most popular ways to change your loan conditions. Put simply, it entails paying off your current mortgage, shutting that account, and taking out a new loan to replace it.
Why refinance?
Money
There are several reasons why people choose to refinance, but money is usually the main driver. Finding a lender with a lower interest rate can save you quite a bit of money, especially if that lender’s rate is consistently lower than those offered by other lenders in the market.
There is a significant difference between the lowest and highest rates on the market for both fixed-rate and variable-rate loans. For a $500,000 loan, a 1% difference in interest would result in a $300 monthly payback difference. This can significantly build up over the life of a 20- or 25-year loan.
Conditions
When choosing a home loan, many people have more criteria in mind than just the lowest interest rate. Another frequent justification for refinancing is to change from a variable to a fixed-interest loan (or vice versa). Other features of a loan that customers could find appealing include redraw (when you can access any additional repayments you make) and an offset loan (where your savings count towards your loan total, meaning you pay a bit less interest each month).
You cannot make additional payments on all loans, especially those with fixed interest rates. A few additional dollars added to your loan every so often (perhaps a bonus, inheritance or tax return) can help you pay it off sooner by months or years. On the other hand, you could be able to benefit from an interest-only period with a new fixed loan, which would mean you are saving money right away.
You may be able to make payments on some loans fortnightly rather than monthly. With more frequent payments, your loan is paid off more frequently, which lowers the interest you have to pay. Every little bit counts.
Debt consolidation
It’s notoriously easy to accumulate debt via personal loans and credit cards. Some people find that consolidating some of these other debts into their home loan can save in the long run. Grouping your debts under a home loan, which normally has lower interest rates than other loans, might make repayment easier. Before making any significant decisions, check in with our experts at Mortgage Broker Sydney, since different lenders have different standards in this area.
The price of refinancing
The difficulty of switching banks, accounts, automated payments, and everything else associated with a home loan is the biggest barrier to refinancing. While we are willing to assist, it is not advisable to constantly switch loans.
here are other costs that might be incurred. There could be an exit fee associated with loans made before 30 June, 2011. Loans with fixed rates may carry termination costs as well. Then there are expenses for the new loan’s setup and ongoing account maintenance. Always make sure that these aren’t more expensive than your current loan since if they are, you can miss some of the advantages of switching lenders.
Ask for help
It can truly pay off to compare several loan rates and conditions while interest rates are fluctuating. Switching lenders can result in significant savings, depending on your debt load and saving habits.
At Mortgage Broker Sydney, we’re always comparing different lenders and loans to determine which one is best for homeowners and investors. We’ll consider your unique goals and financial situation while explaining any potential advantages of refinancing your loan.
Our services come at no cost to you, although if you do take out a loan, lender fees might apply.
Contact us at Mortgage Broker Sydneyif you need help working out if refinancing could be of benefit.
Michael began his career in the finance industry over 35 years ago. He progressed through the ranks at the CBA in both retail and corporate lending, culminating in a senior position as a Corporate Relationship Executive. His decision to leave the bank in 2003 to become an independent mortgage broker was driven by his desire to assist everyday customers break through the jargon of the banking world and access the best loan products in the market. His experience is wide-ranging from helping first time buyers to large commercial enterprises. What Michael doesn’t know about home loans, simply isn’t worth knowing!