Many Australian home owners refrain from refinancing, thinking that it’s a costly affair! However, in reality, refinancing your mortgage can actually lead to a significant amount of savings, provided the right steps are taken at the right time! It can not only lower your periodic repayments, but also provide you with extra cash every month, so that you can fulfill your other responsibilities and lifestyle requirements, say, paying tuition fees, carrying out home repairs, or settling other debts!
You’re bang on target if you’ve managed to secure the cheapest home loan having a lower rate of interest with little or no ongoing fee! Of course, it calls for an extensive amount of research, product comparisons, and negotiations with the cheapest home loan provider.
So How Exactly Does Cheapest Home Loan Refinancing Help in Saving Money?:
On the face of it, a lower rate of interest is the primary aspect that will help you save money on a yearly basis as well as throughout the lifetime of your mortgage. Even with a decrease in interest rate as small as 0.5%, you can potentially save thousands! For instance, you have a fixed rate mortgage of $200000 for a term of 30 years at a 6.0% rate of interest. Currently, your monthly payments are $1199. Now, when you shift to a loan at a 5.5% rate of interest, you would be paying a monthly payment of $1136, which would translate into a saving of $63 in a month and $756 in a year! Multiplying this amount by 20 years would fetch you a potential savings of $15120!
Apart from Cheapest Home Loan Interest Rates, Are There Other Ways to Save Money?
The interest rate isn’t the only aspect that influences your savings! There are several other ways refinancing can help you put dollars back in your pocket!
Decrease in Annual Fees
On your current mortgage, you may be paying a high annual fee. Your new lender or the new product may not demand such a high amount. Even with a small drop in the ongoing fee, you can save several dollars throughout the mortgage term! Further, depending upon your negotiating skills and rapport with the lender, the ongoing fee for the new loan may be completely waived off. Given this scenario, imagine the savings you would be enjoying in the long run!
100% Offset Account
For the uninitiated, an offset account is a transaction account that runs in conjunction with your mortgage account. It operates like a regular savings account, wherein you receive interest on your deposit. The interest earned on this account is automatically offset against the interest you owe towards your mortgage. This helps in decreasing your monthly payments as well as the balance of the loan amount. In a 100% offset account, you earn an interest equivalent to the interest you ought to pay on your mortgage. For instance, you may have a loan of $100000 at a 6% rate of interest along with a 100% offset account with a balance of $10000, wherein you earn the same 6% interest.
Free Redraw & Unlimited Extra Repayments
When you first took a mortgage for your house, you may have opted for a basic product with no additional features. In all probability, this would have happened because you wanted to concentrate on making the repayments on time, without getting distracted by special facilities. Now, when you have a better control on your finances and you’re considering refinancing, you can look for mortgage products with free redraw and unlimited extra repayment facilities. These features would enable you to deposit any extra income into your loan account and then on a later date, redraw an amount in excess of the regular repayments. While additional repayments would help in repaying the loan sooner, the redraw facility would allow you to pay a reduced amount of interest!
Switch to a mortgage of a shorter term
The common notion is that a longer-term loan would boost savings owing to lower monthly repayments. However, you can also save money in interest, by switching to a shorter term loan. In fact, interest rates can be lesser on a 15-year mortgage as compared to a 30-year one, thus helping you to save extra money over and above the savings you make by shortening the term of your mortgage. Of course, opting for this type of loan would increase your monthly payments, but at the end, it would help you save a bundle over time!
Switch from a variable-rate to a fixed-rate loan
If your existing mortgage came with a variable rate of interest, it would be a good idea to change to the cheapest home loan fixed rates, particularly, when the rates are likely to increase in the near future. In case of a variable rate, your monthly payments may go up or down, depending upon the market index. However, once you lock in a fixed rate, you can enjoy peace of mind, since you would be paying a steady amount every month.
Things to Consider for Ensuring That You Make Big Savings!
Refinancing can most definitely put back money in your wallet, but only if it’s done correctly and at the right time! Before taking the plunge, you need to consider a couple of things, to ensure that you are on the right track!
Even the cheapest home loan would come with some costs! It is important to consider what expenditures you would be incurring towards refinancing and ensure that these are outweighed by the savings you intend to make in the process! Ideally, refinancing costs would include application fees, registration fee, valuation fee, settlement fee, and prepayment penalties. It is extremely essential to conduct a proper research and compare the costs before you take your call for refinance.
Avoid Moving or Selling Property Immediately After Refinancing
If you’re thinking that you’ll be able to reap instant savings, think again! It does take some time for the savings to kick in. Experts suggest that it takes about two years to recover the closing costs and start enjoying the savings. Hence, if you have plans to move or sell your property within the first two years of refinancing, you would actually be losing out on the savings, and the deal would turn out to be a loss-making one! It is advisable to wait till you attain the break-even point and further stay in the new mortgage for several years to fully capitalize on the opportunity of making significant savings in money!
Lenders Mortgage Insurance
Another major cost involved in the process of refinancing is the Lenders Mortgage Insurance. If your refinance loan amount accounts for more than 80% of the value of your house, your lender may charge you mortgage insurance, thereby increasing your cost of refinancing!
RefinanceToday – Your Friend & Advisor for Refinancing Home Loans!
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