Mortgages generally have a loan term of up to 30 years. So, let me ask you the simple question, when was the last time you have reviewed it? If you’re answer is over a year ago, it’s probably been too long. Complacency can be extremely costly as we all work so hard to pay off our debts, however ensuring your loan structures are being optimised can save thousands of dollars in the long run.
Unfortunately, many lenders value new business more strongly than retention of their existing customers in which they often attempt to contact you once they know you are refinancing. At this point it can be too late as your new offer is far more attractive. This contradicts the myth that remaining loyal to you existing bank provides you with any bargaining power. We only tend to see this in a minority of cases.
Refinancing has a range of benefits and too often people aren’t aware of what they are.
Below we have included the most common reasons to refinance & its benefits.
Obtain a better interest rate
We are currently experiencing the lowest interest rates we’ve ever had. Now is a great time to be reviewing and ensuring you are not paying above market price.
Eliminate years off your home loan
Refinancing your debt can give you the opportunity to keep making the payments you were making previously, which could contribute to making extra repayments without effecting your current cash flow. These extra repayments can wipe years off your contracted loan term.
Reduce your Home Loan Repayments
When you refinance you can request your new loan term, however in most cases people opt to reset their term (generally over 30 years), which results in reduced payments. If cash flow is currently an issue or cash flow issues are expected to arise in the future with events such as giving birth to a child then doing so may be suitable. If you can afford your current repayments with your existing lender, refinancing could be beneficial to obtain a better interest rate, however it is always best to stick to your current repayment to take advantage of paying our loan down faster.
Leverage your equity position for future investment, home improvements or weddings amongst other purposes
Restructuring your existing lending may allow you to leverage some of the equity available in your property. The purpose could be to purchase an investment property, invest in shares or perhaps to top up on your existing loan to fund a renovation or fund a wedding.
Consolidation of Debts
Credit facilities such as credit cards, personal loans and car loans are generally unsecured debts that come with very high interest rates and have short loan terms. Consolidation of these loans may benefit your situation by paying them off with a lower interest rate and with lower repayments. This is another option if current cash flow is an issue. The important consideration to make however is that by taking short term debts and extending them over longer terms, in the long run you may actually be being more interest and be worse off financially.
If deciding to refinance contact us to have this discussion as sometimes remaining with your existing structure or lender is actually better unless the benefit can be justified. This all demonstrates the importance of reviewing your home loan annually.
The information is general in nature and does not take into account your particular objectives or financial situation. It does not constitute, and should not be relied on as, financial or investment advice or recommendations (expressed or implied) and is not an invitation to take up securities or other financial products or services. No decision should be made on the basis of the information without first seeking expert financial advice. Your full financial needs and requirements would need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.
GKL Financial Group Pty Ltd (Credit Representative Number: 485271) is a Credit Representative of the licence holder Victorian Financial Solutions Pty Ltd (Australian Credit Licence Holder: 431349)
