Imagine you are paying off a $500,000 home loan over a 30 years loan term at an interest rate of 4.20% p.a. Even after factoring in fees and charges towards refinance, if you refinanced at a lower rate of 3.69%, over the term of the loan, you could potentially save yourself $52,000 in interest or save almost three years off your loan term if you choose to contribute the interest saving towards debt reduction. Alternatively, you could opt to reduce your repayment from $2,445 to a more manageable $2,299 per month.
With a result that good, why isn’t everyone doing it?
In fact, fewer people are refinancing. At the start of this year, 0.4% fewer people refinanced their home loan. In May, this trend dipped almost 1%. The total amount refinanced during May was $6.9 billion. Can you imagine all those savings? Imagining is one thing. Getting out and refinancing is a whole different story.
Wishful Thinking About Refinancing Is Just That
Many home owners don’t take the time to research all the home loan options out there, especially if they’ve just gone through the process two or three years before. If they thought their first home loan application was a struggle to get through, refinancing isn’t as tough – but it can be rewarding.
Like buying a car, or signing up for new gas, insurance and other utilities, there’s a competitive market out there. Banks and lenders are locked in battle for your hard earned dollar. You can use this to your advantage.
You don’t have to stick with your lender just because you gave them your business in the beginning. They might have your loan right now, but doesn’t mean they’re entitled to it forever.
If you once had bad credit, or your financial situation has improved since you last refinanced (or perhaps you have never refinanced!), you may find more options are available to you, especially in terms of lower interest rates. This can vary on a case by case basis.
Is Refinancing Your Solution?
If you have bought a home within the last two years you may not be able to refinance. (You can, but you will be paying more for it.) Some packages may not come with options such as offset accounts or redraw facilities. Offset accounts allow you to use interest paid on your deposits to draw down the mortgage. It can help you pay off your mortgage faster.
Refinancing can also help you consolidate debts into a mortgage, which could save you from paying high interest (like credit card interest.) You may find that packages on offer are not so appealing, so making more frequent or additional repayments is the way to go.
Talk To Refinancing Experts
This is just one possible scenario out of so many others, and is just to demonstrate how refinancing can help you save.
However thinking about and thumbing through blog posts like this is like looking at the program guide and not actually watching the show. You’ll have to talk to your lender or broker to find out how to initiate the process.