August 08, 2017
With interest rates at record lows, refinancing may allow you to pocket serious savings.
What is it?
Refinancing is the replacement of an existing debt obligation with another debt obligation under different terms – sometimes referred to as ‘switching’.
Why do you do it?
People choose to refinance for many reasons including:
- Reduce their current home loan repayments
- Take advantage of more flexible loan features
- To be able to pay off their loan quicker
- Renovate or upgrade their home
- To consolidate other debts
- Change lenders due to bad experience
What does it cost?
When deciding to refinance your home loan it is important you consider all the costs involved and how long it will take to recoup these costs with your new loan.
The fees include:
- mortgage discharge fee – most lenders charge between $300-$400
- State Government mortgage discharge fee – currently $181 (in Qld)
- State government mortgage registration fee – currently $181 (in Qld)
- New lenders establishment fee – this varies $0-$300.
Here is an example
BANK A BANK B
INTEREST RATE 4.19% 3.99%
DISCHARGE FEE $350 $300
ESTABLISHMENT FEE $0 $300
Therefore the total cost for a client to move from Bank A to Bank B is
$350+ $181+$181+$300 = $1,012
If we were to consider two clients: Bill with a loan of $200K and Ben with a loan of $550K
Now if Bill moved from Bank A to Bank B he would save $400 in interest on his $200K annually. He would however, take over two and a half years to recoup the cost of refinancing. (This is not considering the principle would decrease and therefore the interest payable would also decrease).
If Ben was to refinance from Bank A to Bank B then he would save $1,100 in the first year in interest payments and therefore the option of refinancing would be a worthwhile one for Ben to consider.
As your home loan experts and Mortgage Choice broker we are able to compare 100s of different loans from over 20 different lenders. We can crunch the numbers with you to ensure your loan has the most competitive home loan rate and features to suit your unique financial situation.