Quick refinance guide

​

​

Like most positive changes in your life, at first it can seem daunting. But once it’s done you were left wondering why on earth didn’t you do it sooner.

 

​

It can be helpful to consider what your time is worth. If the benefit outweighs the investment of time then ask yourself, why wait any longer?

 

​

Refinancing can be worthwhile for various reasons and even small changes in rate can have a profound impact on your pocket. Here are the top reasons broken down:

​

• Lower repayments

• Repay loan sooner

• Protect against rate increases

• Simplify debt

• Top up for something else

• Renovate

• Release equity

 

​

Lower Repayments

Finding out you’ve been unnecessarily throwing money at your banker is a nightmare that can make most want to bury their heads in the sand.

 

​

Our first tip is be kind on yourself and remember it’s not your fault. A recent productivity commission found that banks systematically work to increase your rates above what they are offering new customers.

 

Here’s what you can do:

 

​

Lowering a 4.2% p.a. interest rate by just 50 points to 3.70%p.a. would mean almost $100 extra in your pocket every month for a $350,000 loan with 25 years remaining.

 

​

Extending the term of that same loan to 30 years would reduce repayments by a further $179 a month. But be careful - adding years to your loan will add a lot more interest to your total mortgage repayments.

 

​

Repay Loan sooner

Small changes to your loan early on can have a big impact on your loan term. That’s because home loans are compound interest equations. Which basically means you’re paying interest on interest on interest….

 

​

For example

By increasing your monthly loan repayments by just 10% a month from day 1 of an example mortgage (say 30 year, $350,000 mortgage at 3.7%) you would save about 4.5 years off your term and $39,500 in interest.

 

​

But wait just 5 years to start paying the 10% extra and you'll miss out on a third of those savings, That's about 1.2 years and more than $13,000 in interest savings.

​

​

Reinvesting interest saved from a lower rate as soon as possible could mean years off your mortgage.

 

​

Just 50 basis points over a 25 year mortgage would free you 2+ years earlier from your mortgage. Now what would retiring 2 years earlier mean to you?

 

​

Protect against rate increases

If 'what goes up must come down' - so must 'what goes down must come up'. Or at least that’s what the long term forecast for rates in Australia is.

 

​

Interest rates in Australia have never been lower. But pressure is mounting and according to many, as soon as the economy strengthens rates are on their way up again.

 

​

Fixed rates typically move ahead of variable. This means if you’re thinking it’s time to fix, the market will already be ahead of you.

 

​

Unless you think rates are on their way down, now might just be the time to beat the market.

 

​

Pro tip: Look for a flexible-fixed option if it’s available. Flexible fixed rates are fixed, but come with a 100% offset account so you still have the flexibility to repay extra and redraw when you want.