Why do people refinance?

Many people put it in to the too hard basket, however most of the time it is an easy process if you see a good mortgage broker.

Securing a lower interest rate will save you money in the long term.

If you keep making the repayments which you currently pay, you will slowly build equity in your home which will decrease the size of your monthly payments.

Many banks will be happy to keep you at a high rate and offer new clients the prime lower rates.

Even if you go to the bank as ask for a discount on your rate, they may not give you the same rate they are offering to new customers.

There are many other reason for refinancing.  It can:

• Give you the opportunity to obtain a lower interest rate
• A chance to shorten the term of the loan
• Change from a variable to a fixed rate
• Tap into equity in order to buy an investment property
• Consolidate your debts
• Buy a car at mortgage rates or
• Renovate on your current home.

Some of these motivations do have there benefits and pitfalls.

For example, if you are buying a car under your mortgage payments you should only do it for the term you're likely to keep the car, otherwise you will be paying for it well after you have sold it and paying interest on that loan.

There will be cost involved in refinancing, like valuation fees, title search and application fees so it is important for a homeowner to determine whether the reason for refinancing offers a true benefit.

You should always refinance to the same term you currently have, for example if you have only 15 years to go, the new loan should be at 15 years as well.

If you are buying an investment property and getting the deposit out of your owner occupier, this loan should be at a longer term.

One of the best reasons to refinance is to lower the interest rate on your existing loan.

Today, a 0.5% saving is enough of an incentive to refinance.

Example

If your current home loan is $400,000 over a 20 year term at 4.5% principle and interest your repayments would be approx. $2,531 per month.

There are lenders with rates of 3.64%.

With this rate over the same term your repayments would be approximately $2,349 per month,  saving you approx. $182 per month or $2,184 per year.

If you payed this extra per year, your term of the loan would reduce a lot quicker.

If you want to more information, please talk to one of our experienced Finance Strategists to find out more.