Should you refinance your loan?
If you have a home loan, you probably see advertisements for home loan rates cheaper than what you’re currently paying and think, “I should look into that”. Chances are, you probably don’t because changing loans can be hard work. But when is it worth reviewing your home loan and can you really save enough to make it worth the effort? Review this list to see if you should pick up the phone to your broker.
You’re after a competitive rate
If you’re paying more than 4% on your home loan, or more than 4.5% on your investment loan, start looking around. While the standard variable rates are well above these, many people think that the 0.5% discount they are getting is good. Discounts of more than 1% are commonly available these days, so start looking for better value. A small drop in rate can save you tens of thousands of dollars in the long term.
You’d like a tax effective structure
If you’ve got an investment loan and you’re paying principle and interest, you may want to revisit your structure. This is especially the case if you’re still paying off your non-tax deductible home loan. If you only have investment debt, do you have an offset account? You could be creating some tax issues for the future if your investment loans aren’t structured properly.
You’re paying fees
Not all fees are bad, but knowing which fees are essential and those that are simply profit gouging could save you thousands of dollars. If you’re paying bank fees, it may be worth comparing what you’re paying with what else is out there. A great interest rate with high fees may be worse than a slightly higher rate with less fees.
You’ve had your loan for more than 12 months
If you refinance your loan in the very short term you may incur exit costs. However once you’ve had a loan for 12 months, it may be worth shopping around to check your deal is still competitive. The lending market changes all the time and what wasn’t possible last year may well be possible now.
You’ve had a change in circumstances
If you’re earning less than when you took out the loan, keep in mind that it’s possible that you won’t be approved for a refinance. If you’re uncertain, check with your mortgage broker. It’s a good idea to flag this right away, rather than go through the application process and realise you can’t get approval.
You’ve got other debt
If you’ve gotten a little carried away with the credit cards, or have taken out a personal loan or other expensive debt after your home loan, it might be worthwhile looking for both a refinance and a loan increase to consolidate this debt. Just make sure you turn the money that you save into extra repayments on your loan.
You’re planning to sell
If you’re planning on selling your property soon, you may not get the full long-term benefit of refinancing. Take this into consideration when looking at changing your finance structure and product. If you need to borrow funds for the new property, check the portability options on prospective loans. Some banks will allow you to keep your existing loan and just swap the properties over if it’s acceptable security.
At the end of the day, there has to be a material benefit to refinance your current home loan. But getting it right can save you tens of thousands of dollars and have you owning your home sooner. It can certainly be worth the effort, just make sure you do the numbers or speak to your broker first.
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