When COVID-19 hit Australia in 2020, Australians flocked to their mortgage brokers and lenders to switch to a more competitively priced home loan in an attempt to save money in a financially uncertain time. The pandemic is still impacting businesses and job security within Australia, and with interest rates still low, it is especially important now to ensure your existing loan terms remain competitive in the market.
What does it mean to refinance a mortgage?
‘Refinancing’ refers to the process where you replace your current home loan with a new home loan from a different lender. By regularly reviewing your current loan against the loan options on the market, you can ensure your loan terms remain competitive, and you may even substantially shorten the length of your mortgage through interest rate savings.
With refinancing you can:
- Experience increased cashflow from changing to a lower monthly mortgage repayment.
- Pay lower interest rates – both fixed and variable rate home loans are very low right now.
- Repay your loan faster using increased cashflow to make additional repayments.
To find out more about refinancing, and how we review home loans, check out our article, Everything You Need to Know About Refinancing.
Is refinancing really worth doing? Why is it useful?
Home loans should never be ‘set and forget’. Reserve Bank data showed that the average variable rate for existing home loans is currently 3.07%.1 In contrast, the average rate on new loans is 2.73%.
Not convinced yet? Let’s explore the power of refinancing through an example.
Five years ago, Greg had bought his home by borrowing $485,000. At the average rate of 3.07%, Greg is paying $2,063 in monthly repayments. If Greg then chooses to refinance to a new loan with a rate of 2.73%, his monthly repayments drop to $1,975 per month. However, if Greg chooses to maintain the current repayment level of $2,063, he can pay his loan off nearly 3 years sooner and save approximately $47,000 in interest over the life of the loan.
If you have had the same loan for several years or longer, we can help you find out exactly how much you can save and guide you through all the paperwork. Read more on saving money here.
Why should I consider a home loan review now?
The Reserve Bank has indicated that it does not expect to lift the official cash rate until at least 2024.2 Despite this, banks have begun increasing their long-term fixed rates,3 and these rates are expected to continue rising.4 Locking in a fixed rate refinance now could help you take advantage of low interest rates for a few years into the future, ensuring you maxismise your interest savings.
You can find out whether you should refinance your loan and how much you can save with one of our mortgage broker experts. Simply book an initial consultation here or call us on 08 9367 4222.