Refinancing your mortgage is a common practice now and, if you know of anyone who has a mortgage, more than likely they would know what refinancing is and what it means to them.
To refinance your mortgage means you finance your home loan again with a new lender; usually for a specific purpose – save money on a better deal, attain cash out or restructuring the way your finance works for you.
There are many reasons to refinance but we’re going to look at the top seven:
Let’s look at an example and see how refinancing will save you money.
Jackson has a $500,000 loan and 25 years left on his mortgage. He speaks to his broker and refinances his loan to go from an interest rate of 4.5% to 4.03%.
$500,000 over 25 years at 4.50% = $2,779.00 per month
$500,000 over 25 years at 4.03% = $2,647.00 per month
= $132.00 per month
= $39,600.00 over the 25 year term
The savings he’ll make during the remainder of his loan are at least $39,000!
The reality is that most people right now are paying closer to 5.00% and above, just because they don’t look at their finance and realise what they are paying now in contrast to what they COULD be paying, but you don’t have to be one of those people.
Let’s go back to Jackson… He now has a $1,000,000 mortgage, again with 25 years remaining. Going from 5.00% to 4.03% will save him $165,000 over the life of his loan!
$1,000,000.00 over 25 years at 5.00% = $5,845.00 per month
$1,000,000.00 over 25 years at 4.03% = $5,294.00 per month
= $551 per month
= $165,300 over the 25 year term
Now, if somebody handed you a cheque for $165,000, or even $39,000, in 25 years, will you say no? I didn’t think so.
Understanding and using Comparison Rates
In 2003, the Consumer Credit Code was amended requiring lenders to incorporate all the fees and charges of their product into one flat rate. This is called the comparison rate.
By law, if Lender A offers a rate of 3.9% and fees of 0.5%, while Lender B offers a 4% rate but fees of just 0.1%, Lender B can now show it is the cheaper option by using the comparison rate of 4.1% against Lender A’s 4.4%.
3.90% + Fees of 0.50% = 4.40%
4.00% + Fees of 0.10% = 4.10%
The difference between comparison rates and actual rates causes a lot of confusion, and makes it more important than ever to seek out a Mortgage Broker when refinancing, to ensure you’re getting the best possible loan and can pay the loan off much faster.
Few people enjoy doing their paperwork. Whether it’s doing their taxes or paying bills, they are the tasks we must all do but rarely enjoy.
Owning property brings it’s own additional level of administration. But it’s no secret that Australians have a love affair with real estate and many of us have an investment property as well as our own homes.
From paying rates, to replacing ovens, to painting, properties need to be maintained. To make matters more complicated, depending on when you bought your properties, you may have several different loans from different lenders as well.
Refinancing your loans can help you to streamline the management of your loans and reduce at least some of the administrative burden of property ownership.
Restructuring your loans is a common reason for refinancing, as it affects your future options.
Principal & Interest (P&I) repayments allows you to reduce debt quickly and build equity for the next investment.
Interest Only repayments permit you to make lower monthly repayments without reducing the overall debt amount, leaving you more dependent on capital increase for equity growth.
Refinancing your loan allows you to restructure to better suit your future goals.
Low Fixed Rates
Interest rates are low now, so this is a great time to lock in a fixed rate. Rates won’t be at these levels forever. When the economy starts pumping again, interest rates will start to increase.
Refinancing to a fixed rate for a few years gives you the real possibility you could pay your mortgage down so you won’t have to worry about the higher variable rate when your fixed term is finished.
Fixed interest rates are available for 1-5 years allowing you to determine a time frame that suits your anticipated future movements and plans.
If you have a mortgage on your home as well as your investment properties, refinancing your loan could allow you to restructure the security properties attached to the loan.
By structuring your home loans, you could move the debt from your family home into your investment properties, potentially allowing you to own your own home, mortgage free, faster.
It’s Not Hard
Changing your mortgage can save you money, reduce stress, and set you up for your future. Red Tick Home Loans are here to work with you as your Mortgage Expert, to make the process easy and smooth.
If you’re ready to look into refinancing options, email us or alternatively you can complete our online free assessment form which will be responded to within 24 hours – absolutely obligation free. We’re here to help you get the most out of your mortgage, today and in the future.