Refinancing involves switching to a different home loan, usually with better features and a lower interest rate.
Borrowers who are unhappy with their lenders commonly refinance.
So why do people put up with getting overcharged by greedy lenders?
First, there is a common misconception that refinancing is complex and stressful, but this doesn’t have to be the case. A professional mortgage broker can do all the heavy lifting for you, making it simple to save money.- They also work at no charge to you.
Here are the top 5 benefits of refinancing your home loan.
Improved lender benefits.
When you got your first home loan your circumstances might have meant you had a narrow choice of lenders. But now, you’re in a different situation and in a position to take advantage of lenders who can give you better support and benefits.
With more loan experience, you probably know what loan features are important to you, ie;
- An offset account- These are a great way to save on interest payments
- A Redraw Facility- Allows you to redraw any extra repayments you’ve made without charge and is often used to fund renovations, holidays or new cars
- Transaction accounts and credit cards.
Refinancing can save you money, but is also a great way to better tailor your loan to what you need.
2. Adjust your loan term
Most loan terms are 25 to 30 years. Refinancing allows you to shorten or extend the life of your loan.
Shorter loans, generally have larger monthly repayments. Longer terms have smaller repayments each month.
Remember, the longer your loan term, the more interest you will end up paying. A good mortgage broker can help you determine the pros and cons, while taking into account your unique set of circumstances.
3. Change loan types
There are many types of loans: Fixed rate, variable rate and split. Then there are interest-only and principal and interest versions.
All these can impact your savings. Your needs may change over time, so changing loan types might be advantageous.
4. Accessing home equity
In addition to the loan experience you build up over the time you’ve had your loan. You likely have built up some serious home equity.
Home equity is the amount of your home that you own, simply the amount that you’ve paid off.
The good news is, you can use this equity. You might renovate the kitchen, or put down a deposit on an investment property. Using equity to fund an investment property has been hugely successful for many Australians in funding for retirement.
5. Lower Interest rates
Lower interest rates are a compelling reason to refinance, especially with interest rates taking a dive over with the 3 recent rate cuts.
If you brought your home when rates were higher, there’s more than a good chance the rate you are paying is not competitive and costing you your hard earned savings.
The latest interest rate cut by the RBA has left rates at an eye-watering 0.75%.
What to avoid
When refinancing it is possible to combine different loans together. For example, a car loan may be rolled into your home loan which helps reduce the interest rate on the car loan.
However, a car loan might originally have a term of say 5 years. Whereas a home loan term is generally 30 year. So when you combine a car loan into a home loan you might reduce the monthly repayments you end up paying more on your car loan because you are now paying it off over 25 years rather than 5 years.
Is refinancing for you?
If you’re interested in saving money on your home loan, then spending a few minutes on the phone with a finance specialist will give you an indication of what might be possible in terms of your situation. A little saving each month can help return massive savings over the course of your loan.
Comparing home loans is easy, as is saving money. Don’t miss your chance to save!
Still have questions about your finances? Let’s talk!