Refinancing for homeowners and investors is one of the most significant steps, potentially saving thousands in interest payments. Interestingly, there are many reasons why someone would want to refinance, but for the most part, it is about securing the best possible deal. Reviewing your mortgage will help you stay up to date on the latest mortgage products.
If you haven’t yet considered mortgage refinancing, here are a couple of reasons why now is the best time to do it.
You will want to refinance and take advantage of presently low-interest rates. The Australian mortgage industry is constantly fluctuating, and with interest rates following trends set by the RBA, means you can save quite a bit. In the past 24 months, we’ve seen the official RBA’s cash rate drop by 1.4 percent, with mortgage rates following this trend. That’s why you might be paying a lot more than you should at the moment.
Refinancing a loan can help you save by paying a lower interest rate. You can end up paying far less over the life of your mortgage/loan. Anyone who has had a loan for over a year is probably already paying more than they should.
If your mortgage was $500,000, and the interest rate was at 3.75%, then you’re probably paying around $2315 a month. If you choose to refinance to the now 2.29%, you’ll pay $1921, which puts $394 back into your pocket each month. Over the life of the loan, it would mean paying $141840 less than you otherwise would. **
Loan and Type of Financial Product
Now, if you are on a variable interest rate but want to lock in the best rate, adding a fixed term to the load will help you secure the best possible rate. If your current fixed term is ending, you may be switched automatically to a variable rate, which means you should reconsider refinancing for a fixed rate and, ideally, a lower interest rate.
Historically, the value of property in Australia has consistently increased. In other words, you can use the increase in value to secure a better interest rate.
Let’s say you purchased a home for $500,000 and mortgaged $450,000, but since then, the value of your property has increased to somewhere over $600,000, the equity would have increased by 15% at least. This means you should be able to ask lenders to give you a more competitive rate. The reduced interest costs can help you pay off the loan sooner.
Another good reason to refinance is it allows you to consolidate your debts into a single monthly payment. You enjoy a much lower interest rate and consequently lower monthly payments. Doing this will mean that you pay a lower interest rate for other debts like car loans, credit cards and personal loans, which can otherwise be expensive.
You will want to consider consolidating your loans if you pay a very high-interest rate on multiple loans. However, make sure to take a close look at the new term and interest rate post-consolidation.
Not Sure About Refinancing?
If you aren’t sure about refinancing, then speak with us today. Our team will be more than happy to help you get the most out of the present low-interest rates in Australia.
**Calculation is based on the current Variable Rate (as at 13/05/2021) of 2.29% over a 30 year loan term.