You may ask why refinance a home loan, and the answer begins with Interest rates in Australia being at all-time lows, and you can save thousands. You may be paying too much for your home loan, and why give your hard-earned money to the bank?
Mortgage Broker Melbourne, What If We Finance, advises customers will refinance their home loan for several different reasons, including:
- Historically low-interest rates mean your current home loan may be too expensive.
- Fixed rates can be a way of protecting yourself from rising interest rates. Fixed rates offer certainty of repayments, but you should consider our guide. Should you choose a Fixed Rate Loan, You may even have a lender cover the refinancing costs or even receive some cash back.
- To finance renovations, property investments or consolidate debts.
- Access new product features such as offset accounts.
For most people, this strategy is a way to start saving money on their current home loan and achieve their future goals and aspirations.
So, where do you begin?
Step 1: Understand what you are trying to achieve?
Are you just looking to save on your home loan or buy an investment property, finance a holiday or renovation, or for any other reason?
Step 2: Talk to your Independent Mortgage Broker
Your mortgage broker can help you understand your current loan's cost and potential savings. For example:
- Your current loan amount: $600,000
- Current interest rate: 3.00%
- Current monthly repayment: $2,530
- New interest rate: 2.00%
- New monthly repayment: $2,217
You save $313 per month or $3,756 per annum or $37,560 every 10 years of your home loan.
Your mortgage broker will help you understand the savings.
Step 3: Watch out for the gotchas!
Your mortgage broker will help you understand if the following apply to you:
A. Fixed-Rate loan – if you are on a fixed-rate loan, there may be break costs or penalties to refinance. These can be substantial, and you must work with mortgage broker Melbourne What If We Finance to understand if these apply or
B. Is your loan more than 80% of the property value. If this is true, then Lenders Mortgage Insurance may apply. This can be prohibitive, and refinancing may not be the best option. Our guide on What is LMI and how you can avoid it provides more information.
C. Cashback is not a reason to refinance. Many clients say I want to refinance to avail of cashback. But that is not a reason to refinance. Many lenders who offer cashback offer higher rates so that the home loan may be more expensive; in summary, cashback alone is not a reason o refinance.
Refinancing can save you a considerable amount of money on your home loan but remember there may be several caveats you need to consider. This is where a mortgage broker like What If We Finance can assist.
Contact What If We Finance today to start saving and achieve your goals.