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With two consecutive RBA rate cuts, interest rates are at an all-time low. If your mortgage is over two years old, there’s a high chance that your current rate isn’t the most competitive. Even a 0.5% rate change could significantly trim your monthly repayments instantly improving your disposable surplus, and liquidity in times of financial stress.
Saving promoting features
If your current mortgage doesn’t offer you saving features like an offset account or switching to fixed rate, it’s worth looking for mortgage options that do. Here’s a quick gist of what some saving promoting features are:
- Offset account: An offset account is an account that’s linked to your mortgage and allows you to pay lower interest. Let’s say you owe the bank $100,000 and have $25,000 in your offset account. So, the bank will now calculate interest for your repayment on $75,000 (due to $25,000 in your offset account) instead of $100,000. In addition to savings, this could potentially help you close your loan sooner.
- Switching to a fixed rate: With fixed rates in the low to mid 2’s, they may undercut variable rates by over 0.50%, offering immediate savings.
Shorter Loan Tenure
If you are financially secure and can continue with your monthly repayments, refinancing to a lower interest could let you close your loan faster with the same repayments. Refinancing allows you to switch to a mortgage option with a lower tenure maintaining the same repayment amount.
Access to funds
If you need funds and have greater than 20% equity in your property, you could leverage it to borrow more. Equity is the value of the property minus the money you owe the lender. If the value of your property is $500,0000 and you owe the bank $400,000, then your equity is AUD 100,000. Refinancing gives you the option of using this equity as security to gain access to funds you may need.
If you are currently burdened with a lot of non-mortgage debt and are struggling to pay, manage and track multiple bills, consider refinancing to consolidate payments. Bundling multiple payments into your home loan could offer benefits like
One consolidated payment for easier management
Potentially lower interest rates as home loan rates are lower than other rates like credit card loans
A clear timeline of when you can expect to be debt-free
A Caveat on refinancing
Despite its apparent benefits, there are circumstances where refinancing should not be opted for. These include
Immediate hardship due to job loss or a substantial decline in income
An anticipated decline in income over the next few months
In both circumstances, it’s best to seek immediate assistance from your existing lender before missing a repayment.
Thanks to a marked reduction in lender appetite for borrowers in higher risk professions and intensified competition for perceived lower risk clients refinancing could be quick, simple and easy. However, do keep in mind that opting for the refinancing option involves a thorough understanding of your circumstances and financial goals, coupled with an in-depth evaluation of available offerings. It’s best to seek expert guidance to navigate the complexities of the mortgage market to zero in on the best match.