Get The Most Out of Refinancing

How to get the most out of refinancing?

Refinancing is one strategy to help lower your interest rates for those who want to pay less on their mortgage.  The question that many ask - is it worth it?  Let's have a look at how to get the most out of refinancing.


Why refinance?

Generally, it is to negotiate a better deal on their home loan and pay it off sooner.  By taking advantage of lower interest rates (or new products that were not available when you first negotiated your home loan), you should be able to save money, depending on your situation.  

Let's say your loan was $300,000 at 4.5% over 30 years with monthly repayments of $1,522.  If refinanced to a new loan 3.7%, you could save $50,079 ($139 per month) over the life of the loan by making the minimum repayments of $1,383 per month.

Once you've refinanced, if you continued making the same minimum as your previous loan (1,522 per month), you'll potentially save $83,925 and pay off your mortgage 55 months early.


Make it work for you

Take advantage of your refinanced loan by:

·         Consolidating debts: you can save money by consolidating debts such as credit cards or personal loans into your mortgage, as home loan rates are often lower than those other forms of credit.  Beware, however: paying off a short-term loan over a longer period will likely incur extra interest and fees over the longer term. Put the money saved from consolidating your debts into your mortgage, as if you were still repaying the other debts, to reduce the overall debt faster.

·         ‘Splitting’ your loan: Nominate a portion to be charged at a fixed rate of interest for a set period of time, with the balance charged at a variable interest rate. When the fixed rate period ends, the loan reverts to the variable interest rate. You benefit from the security of the fixed rate and flexibility of a variable rate loan, and are impacted less if interest rates rise.

·         Having an offset account: The balance of your offset account is subtracted from the remaining principal amount before interest is applied, meaning you spend less on interest over the course of your loan.

·         Making extra repayments: Any payments made on top of your regular repayment will save money by reducing the amount of interest you’ll pay.


When should you consider refinancing? 

Life brings change and your mortgage needs to keep up: maybe you now have a partner, a young family, a new job that pays more, or have become empty nesters with extra cash on your hands. If the terms of your current loan don’t allow you to pay more (or less) on your principal amount, it could be worth considering refinancing into a more flexible arrangement.

Refinancing or loan switching can save money, but you might incur costs such as exit and establishment fees, government charges and administrative or legal expenses. These costs need to be weighed against the benefits to determine if you’ll save in the long run.

Today’s home loan market is very competitive, and there might be a loan out there offering the features and flexibility you want. Before you make any decisions, however, be clear on your reasons for refinancing. It’s also a good idea to speak to an experienced mortgage broker or financial expert to ensure you’re making the right move for your financial situation.



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