To refinance or not to refinance
Right now, refinancing is one of the hottest topics around – with everyone from the Reserve Bank of Australia’s governor to reporters urging homeowners to shop around.
Many Australians have followed this advice. According to the Australian Bureau of Statistics, over 207,000 home loans to the tune of $57 billion were refinanced between April and October last year.
Should you join them?
While every homeowner’s situation differs, here are the top four reasons why you should consider refinancing your home loan.
1. Save money
Australia’s home loan market is extremely competitive with lenders fighting for your business. And the best way to attract new customers? Offering better deals than your rivals.
Collectively, lenders cut their mortgage rates 6,777 times between 1 January and 31 December 2020. As a result, home loan rates are at record lows – with some even starting with a 1!
So, even if your current home loan was competitive when you took it out, that may no longer be the case.
Refinancing onto a lower rate can save you money – slashing your monthly repayments and, more importantly, the total interest paid over the life of your loan.
2. Pay off your mortgage sooner
Want to save even more money? Then, consider refinancing onto a shorter loan term. While this means higher monthly repayments, you’ll become mortgage-free faster – saving you tens of thousands of dollars in the long run. As an added bonus, you’ll get to build equity in your home faster by reducing your loan term.
3. Unlock equity
Equity is the difference between what you owe on the property and its current value.
For example, say your home is worth $800,000 and you have $500,000 outstanding on your mortgage. This gives you $300,000 in equity.
While this money is yours, it’s currently tied up in your property. Refinancing can let you pull some of it out to spend on other things including renovations, extensions or, even, a deposit for an investment property.
4. Get better features
While interest rates usually get all the attention when it comes to home loans, they shouldn’t be your only consideration.
Home loans come in all shapes and sizes – ranging from basic products to those packed full of features. Some features, such as offset accounts and redraw facilities, can reduce the amount of interest you have to pay and help you become mortgage-free sooner. So, if your existing mortgage doesn’t come with them, you might want to refinance onto a product that does.
Run your numbers
While refinancing can be a good idea for some borrowers, it’s not suitable for everyone. It also comes with costs attached – including discharge fees, application fees and break fees (if your current home loan is fixed).
You need to run your numbers first to see if the benefits of switching outweigh the costs. There are two ways you can do that:
Grab a calculator, open a spreadsheet and do all the hard work yourself
Dump the problem on Just Imagine Finance – an expert broker knows exactly how to workshop different scenarios
How a good broker can help
The right home loan for you might not necessarily be the one with the lowest rate. That’s because a mortgage should suit your circumstances both now and in the future.
A good broker works with you to understand your financial needs and goals. They’ll then use this information to find you a great deal that best suits your individual situation.
Want to save money by refinancing onto a better deal? Get a free consultation with Just Imagine Finance to find out if it’s right for you by emailing catherine@justimaginefinance.com.au or calling 0414 673 359.
