Buying a home is a significant life event that for most comes with the largest financial commitment you will face in your lifetime: A Mortgage. Over the 30 year life of a mortgage borrowers face significant changes to market conditions and movement through the peaks and troughs of the interest rate cycle. With interest compounding over a 30 year period, structure decisions can cost or save you thousands of dollars over the term of the mortgage.
It is important to review your mortgage on a regular basis ensuring that it still meets your needs. Maintenance may involve simply re-fixing the loan at the expiry of your fixed rates or it may involve refinancing or restructuring your bank lending.
Does refinancing make sense for me?
There are several circumstances where refinancing may be in your best interests:
- Cashback offers.
The main banks usually offer a cash incentive when you take out a new home loan (or refinance an existing loan). The amount has typically been around 0.6% of the loan amount but recently we have been a whopping 1% offered by a couple of banks – so if you have an $800,000 mortgage, that’s an extra $8,000 cash in your pocket (before any transactional costs like legal fees etc). Note that if you are paid a cash back, you will be required to keep your lending with that bank for a minimum period (usually 3-4 years) or be required to repay some or all of the cash back amount.
- Reduce your interest rate.
With the banks competing for business in a slower lending market the lenders are undercutting each other in their fixed rate offerings. Consequently, there can be a small amount of value in moving from one main bank to another.
If you are currently with a second-tier bank, refinancing to a main bank is in your best interests and will reduce your interest costs by a couple of percentage points.
With even a small interest rate saving a borrower can:
i) Increase principal repayments to pay off the loan faster.
ii) Free up funds in household budget for other purposes.
- Access equity for another property purchase.
This can be the case for the purchase of an Investment Property, where lending criteria across the banks can be quite significant which creates significant differences in borrowing capacity.
So if your current bank says you don’t meet the minimum affordability threshold, it’s possible that you will at another bank.
- Consolidate debts to better manage repayments.
Short term debt like Car Loans and Personal Loans charge a significantly higher interest rate than home loans secured by residential property. It may be beneficial to refinance and consolidate these debts into your existing housing loans, reducing your interest costs and simplifying your finances going forward.
In summary
As a mortgage adviser I have the ability to assess your situation and look for opportunities across the market to improve your position. Whether that be obtaining some extra cash, making sure your interest rate is competitive, accessing the extra capital you need for the next investment, or consolidating and simplifying debts – I can do that all for you.
So please get in touch if you’d like someone to do the hard work for you.
Grant Stephens
Mortgage Adviser
Personalised Mortgages
