One of the most common questions I’m asked by my clients is, “Is refinancing worth the hassle?”. There is no hard and fast rule, it’s completely dependent on your individual situation and short and long term goals and it’s something you need to consider carefully.
The last few weeks have seen quite a shift in the lending landscape and, as it stands, the Reserve Bank cash rate has hovered at 1.5 per cent since August 2016. This rate has more-or-less translated to a standard variable rate among the banks of around 4 – 6 per cent depending on your lender.
Last week’s RBA cash rate decrease of .25 basis points, translates to a decrease on the national average loan amount of $400,000*, of almost $60 a month, or just over $700 a year – that’s if your lender has passed on the full cut of course.
With another .25 basis point decrease predicted before Christmas (most likely in October/early November), you could be looking at some serious savings on what you’re currently paying but could you be doing more to make the most of it? In today’s marketplace, it’s possible.
If you are looking to save money, pay down debt faster, incorporate new features, want additional funding for renovation or investment or need to consolidate debt I can assist you to establish if refinancing is right for you, or perhaps put a plan in place to take advantage of improved market conditions.
Refinancing doesn’t need to be a ‘hassle’ so here I’ll bust the most common refinancing myths and hopefully put you in the driver seat when it comes to making some money-saving decisions:
- Too complex – One common myth about refinancing is that it’s just too complicated. While it can involve some research and evaluating different products, it’s well worth it if you’re going to be able to access money-saving features in a new home loan product. Correcting your course sooner rather than later can mean big savings further down the line. Plus, if you work with a mortgage broker, you’ll have an expert who can help you understand the products and even help with preparing your loan application.
- It’s not right for you – As with any other good or service you use, you can choose another product if you find you’re not happy with your current one. The set-and-forget option could be a costly one if you end up paying more on interest or get penalised for extra or early repayments.
- You don’t save much – Another common myth is you can’t save a lot of money with just a 0.5% difference in interest rates. In fact, just a 0.5% lower interest rate could mean thousands of dollars over the long term. On a 30-year, $500,000 principal and interest mortgage, you could save around $55,000 if, for instance, you switch to a 5% p.a. interest rate from 5.5% p.a.
- Fixed rate mortgages can’t be refinanced – This myth might come from the term “fixed” rate – but a fixed rate doesn’t mean your mortgage is set in stone! However there are normally fees to pay if you break the mortgage within a certain timeframe – typically one to five years, but it doesn’t mean that you can’t gain from mortgage refinancing.
Still not sure if refinancing is for you? You’re not alone. The team at Green Finance Group are here to help you weigh up the costs against the benefits so you are in a position to make an informed decision. Give us a call or shoot us an email…even if you just need a question answered we are happy to help.
*Based on a $400,000 home loan over 30 years at 4.36% average variable interest rate and LVR of 80%.