June 28, 2017
With record low interest rates still been offered by the financial institutions, you would want to make sure that you are not paying more than you need to on your home loan. By refinancing your loan you may be able to cut thousands off your repayments each year.
What is refinancing?
When you refinance your home loan, you renegotiate the terms of the loan either with your current lender or a new lender. Many lenders will become much more competitive if you mention that you can get a better interest rate with another lender! When refinancing your loan, the interest rate will decrease but you can choose to keep the current length of the loan or reset it out to 30 years again, although some financial institutions may restrict the length of the loan based on age. You can also choose to keep paying the same amount each month as you are now and this will reduce the length of the loan.
You may want to consolidate some other debts into the home loan. This will obviously increase the size of the loan and use up equity in your home but should reduce your overall payments. Home loan rates are usually much less than other consumer debt rates.
Should I refinance?
The first thing you need to do is find the most recent loan statement sent to you from your financial institution. The loan statement should show the current interest rate, loan balance, repayments and any available ‘redraw’ (the amount you are in front of your minimum repayments).
Is it currently a fixed or variable rate loan? If it is a fixed loan, there will be ‘break costs’ that need to be factored into the refinancing equation. You will need to call your lender to find out how much this may be. Otherwise, check how long the fixed period has to run. It may be worth marking in your diary to follow this up when the fixed rate finishes.
Is it a Principal and Interest (P&I) loan where you are paying a little off the loan amount as well as the interest each month, or is it an Interest only (IO) loan? Financial institutions are currently setting their rates for IO loans higher than the P&I loans. If the IO loan is for your own home, you may like to consider changing it to P&I but be aware that while your interest rate will be lower your actual repayments will be higher as you will be paying part of the loan amount off as well.
What interest rate are you paying? If it is a variable, P&I loan less than 80% of your home, you may be able to get the interest rate down to around 3.8% or less. There will be set up and exit costs that you will need to pay as well (which may be subsidised, depending on the lender) so make sure you factor these in to the equation.
If you would like to explore your refinancing options, give me a call on
0403 577 287 – Mark Scherer