Refinancing may be a great way to save money or free up some extra cash during these uncertain times.
With many Australians experiencing financial uncertainty during the COVID-19 crisis, refinancing your home loan is a viable option for those looking to save money on their mortgage repayments or free up some cash, and you can do so without walking out the door.
“With record low rates, now is a good time to compare your existing loan with what’s available across the market,” LJ Hooker Home Loans South East Melbourne principal, David O’Callaghan, says.
“A simple phone or web based review may potentially save your household thousands of dollars.” Mr O’Callaghan said.
Refinancing is the process of replacing your home loan with a facility from a new lender who’s prepared to offer you better terms.
“People usually refinance to lower the interest rate on their current loan or increase the facility’s value for something like a renovation,” says Mr O’Callaghan.
It pays to shop around for a new rate, or to simply have some review what you have.
Related post: How much a bank “Loyalty Tax” could be costing you
The average interest rate has dropped significantly in the past 12 months, so if you have been with the same lender for a while, there is a good chance you’ll be able to find a loan with a lower rate and still access all the features you’re looking for.
“You can potentially cut your monthly repayments down, or you could shave years off the life of your loan if you decide to pay the same amount as you have been paying on a loan with a lower rate,” Mr O’Callaghan says.
While the RBA’s cash rate has come down from 1.5 per cent in May 2019 to 0.25 per cent, banks have not always passed on the full cut in the interest rate. If your owner occupied home loan rate is more than 3 per cent, you could be overpaying on your home loan.
For those who have been long time customers of a single lender, the loyalty tax is another incentive to refinance. New customers to the lender are offered a lower rate to incentivise sign-ups that established clients are not, leading to premiums that continue to increase over time.
“It pays to look around at least every couple of years to find out what is available.” Mr O’Callaghan adds.
You can also consolidate personal loans, car loans and credit cards into your home loan, and substantially reduce the overall interest you pay. For instance, car loans can accrue interest at a rate of between 4 and 15 per cent, while home loans typically attract a rate less than 3 per cent.
“You can also refinance to get access to features like an offset account or redraw facility or to make extra payments so you pay off your loan sooner,” Mr O’Callaghan adds.
Simple steps to refinance
Despite social distancing restrictions that are currently in place, it’s still possible to refinance your home without even walking out the front door.
Using web and phone based interactions with an LJ Hooker Home Loans lending specialist, home owners can compare, choose and potentially settle a home loan, in their own time.
Download our handy ebook today!
We hope you found this article helpful. If you'd like to discuss it further please fill in the form below and we'll be in touch.
This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.