Refinancing – How Much Can You Save On Your Home Loan

What is Refinancing?

Refinancing is the process of replacing an existing home loan with a new one. It means your existing home loan is paid out and replaced with a new home loan.

This is different from a second mortgage, where you draw on the equity you have built up in your home. Refinancing is all about giving you greater flexibility and saving you money in the long term.

How Can Refinancing Help Save You Money?

Did you know refinancing your home loan could save thousands of dollars over the life of your loan? There are a number ways to reduce the interest you pay on your mortgage. It is well worth shopping around for a lower rate and more product features to help save you thousands of dollars and years off your home loan.

Piggybank with house drawn on it

Imagine if your home loan interest rate was 5.36% p.a. on Principal and Interest repayments for a $650,000 loan over a 30 year term… Your monthly repayment would be come to a total of $3,634.

Now. If you were able to refinance this home loan to a lower interest rate of 5.22% p.a. In this scenario, your total monthly repayment would be reduced to $3,578. This would save you a total of $23,400 in interest payments over the 30 year loan term.

Another option to help increase your savings when refinancing is to choose a loan with a lower interest rate but to continue paying the same monthly repayment as you were making before. This means you will be paying less of the interest on the home loan and more of the principle with each payment. This means you will pay that mortgage off faster than if you continue making the “minimum repayment”.

Alternatively, refinancing can help you save money by consolidating debt from high-interest credit cards or personal loans into a single home loan with a lower rate of interest.

Features You Need Consider When Refinancing

If you’re thinking about refinancing, it’s a good idea to think about which features are important to you before starting the search for a lower interest rate / different loan product.

1. Variable Rate vs. Fixed Rate Home Loans

A fixed rate gives you more certainty over the longer term. Simply put, you always know how much you have to pay each month. A variable rate on the other hand fluctuates with the market, so you’ll save when it’s down but there’s always a risk it will rise.

If you crave certainty, fixing your rate is the way to go.

2. Having an Offset Account

Here, you are using the cash in hand to “offset” against your loan balance until you need to spend it. This will potentially save you interest each month, meaning you are going to be paying more of the loan principle each month. And as you know, the quicker you pay the principle, the quicker you pay off the loan.

3. Line of Credit Facility

If you have a lot of equity in your home, look for lenders that might offer you a relatively inexpensive Line of Credit secured against the property. This is an amount of money you can take back out of the loan if and when you need to.

This can be used for future investment, asset purchases or other reasons.

4. Repayment Flexibility

Repaying a loan fortnightly rather than monthly can make it easier to t in your budgeting plans. It also means you are paying more of the interest quicker.

5. Early Pay Out Penalties

Some Lenders charge more for you to pay your home loan early. You may want to look for home loan products with the option of paying them off early with minimal penalties.


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What Are The Costs Involved?

When refinancing any home loan, we always have to perform a Cost Benefit Analysis. Simply put, what is the cost of refinancing vs. the monetary / perceived benefit of going with a new loan product?

Always check for costs involved with changes to your current home loan, as there can be costs associated with refinancing. If so, it is always important to factor these in to your decision-making. Check for exit fees if you terminate your loan ahead of schedule. Contact your lender and ask for all associated costs involved. Remember, you may need to pay a break fee for a fixed rate mortgage.

Do The Maths

There are online mortgage calculators available to give you an idea on what your monthly mortgage repayments will be at different interest rates and loan terms.

It is also advisable to compare fees and charges to ensure they won’t offset any savings in interest over the life of a loan. This brings us back to the concept of running a Cost Benefit Analysis.

Lending Criteria Changes

At the time of writing this article, Lenders have been applying more restrictive lending criteria. This can come in many forms. Such as;

  • Reduced  borrowing capacity
  • Post code restrictions – this is especially true for inner city apartments in Sydney, Melbourne and Brisbane
  • Reduction in the availability of interest only / investor loans

How A Broker Can Help You

A good mortgage broker can help establish the type of home loan that may work best for you, how much you can borrow and any extra features you may want in your new lending facility. They can gather information from many different lenders and help assess the costs and benefits associated with each loan.

As well as doing the legwork for you, they can guide you through the refinancing process and apply their knowledge and understanding of mortgages to help you achieve the best outcome possible.

Often times, they will be able to find you Lender Specials that may not be available to the general public. Or that your bank will not volunteer to give you off their own bat.


Home Loan Health Check

Let’s see if we can help you find a more suitable loan product…

It should not take more than a couple of minutes to tell us about your current situation and what you want to do. After this, one of OneSite’s Loans Advisors will contact you to start the review process.

 


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