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Do you know how much your home loan is costing you?

If you answer “no”, it’s probably a timely decision to review your financial position and consider what else is out there in the market, because the Australian lending landscape has never been as competitive as it is now.

Why refinance?

Refinancing lets you alter your loan to suit your changing needs and provide you with better opportunities. A refinance is basically replacing your existing mortgage with a more favourable loan; this usually this means a loan with a lower interest rate.

People may refinance for one of the following reasons:

  • You would like to renovate your home.
  • You are moving home.
  • You want to consolidate debts.
  • You want to raise funds for a purchase.
  • You want to switch from a fixed rate to a variable rate.
  • You want to switch from a variable rate to a fixed rate.
  • To save on interest (i.e. have a better interest rate).
  • You want to reduce your monthly repayments.

The best way to approach the refinancing of your existing home loan is to establish clear goals. Whether you want to cut your repayments, free up cash, gain equity for your next purchase or improve your home, you need to have a firm understanding of what you ultimately want to achieve. In our experience many refinance troubles start with borrowers who have no clue why they’re doing it.

Some important questions we consider when clients are thinking about refinancing are:

  • Has the client set specific goals for the refinance?
  • Will there be any ongoing fees attached to the loan?
  • Can our client make extra repayments to the loan without penalty?
  • Does the new loan have any early repayment fees to consider?
  • Will our client benefit from an offset or line of credit product?

Knowing the costs of refinancing

You benefit from lower fees, charges and interest rates (and therefore lower repayments). Additional benefits may arise from the features of a specific loan product.

Some costs that may be applicable:

  • Application, documentation, settlement and handling fees, charged by most lenders.
  • Early repayment fees, which vary widely according to lender.
  • Discharge fees on your existing mortgage.
  • Registration fees on your new mortgage.
  • Stamp duty costs on the new mortgage (only if you increase the amount of the borrowing).

The savings you stand to make from refinancing your home loan can make an impact on your lending.  For example, a little while ago we had a client who was on a standard variable rate of 6.57% with a well-known lender and his fortnightly repayments were $1,113.70.

He contacted us wanting to compare his loan with what our lending panel were offering, unaware that due to the size of his borrowing ($350,000) he qualified for a professional package at an interest rate of 5.87% with another well-known lender.

We were able to reduce his fortnightly repayments to $1,034.17, which is a saving of $79.53 a fortnight or $159 per month. More importantly, this equates to an interest saving of $57,263 over the life of the loan. This saving opened up some options for our client once he refinanced. He could just make the required repayment amount and have extra cash in his pocket each month, or after refinancing to the lower rate, he could keep making the same repayments for the higher rate (i.e. $1,113.70), shaving 5 years off the loan and saving $76,844 in interest over the loan term.

If this makes you question whether you’re getting the best possible deal out of your current mortgage or property loan portfolio, perhaps you should consider contacting us for a no obligation chat about your circumstances and how we can assist you in identifying the best possible loan product for your personal circumstances and objectives.

Click here to contact us, or subscribe to receive regular post updates and industry insights.

Stuart Wemyss is a chartered accountant and founder of Property Tycoon Finance. Email: wealth@propertytycoonfinance.com.au

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