Australians have become more engaged with their home loan deals over the last couple of years. They’ve had to, because the RBA has engaged in the steepest cash rate hiking cycle on record.
Borrowers have watched as the official rate went from a historically low 0.1% to where it sits now at 4.35%. Over this time, many people have seen mortgage repayments rise by hundreds, even thousands, of dollars per month.
In fact, someone with a $500,000 mortgage is now paying more than $1100 a month extra to the bank than they were before the hikes began.
So it’s little wonder that record numbers of Aussies have been refinancing their mortgages for a better deal.
The refinancing process led many people to discover that they hadn’t been on a very good deal in the first place. It’s that complacency that lenders rely on to make extra money out of borrowers in the form of a “lazy” or “loyalty” tax.
Fast forward to today and interest rates have now been on hold for more than a year. For many, complacency may have crept back in.
Refinancing now, even before a rate cut, could give you a personal rate cut in the savings you make through a better deal. Then when the RBA eventually does cut rates, you can double your savings.
Regardless of what is happening with interest rates, it’s important to regularly review your loan products and refinance to a better deal when it suits. Here are some of the advantages.
Keep more of your money for yourself
Thanks to compound interest, if you are paying a rate too high by even 0.5%, the difference can cost you more than $100k over the life of a loan.
That’s money you are giving to the bank unnecessarily, rather than reinvesting it into building more wealth.
Refinancing can mean paying less each month in other ways too. You may have 20 years left on your loan term, but need to boost your cashflow. You could do this by refinancing to a longer loan term, such as 30 years. You could also refinance to interest only if you are currently paying down the principal.
Of course, if you pay less by the month using these methods, you will usually end up paying more over the term of the loan, so think about why you are doing it. If it’s to free up money to put into further property investment, that means you are still making the money work for you. If it’s to help pay for something you otherwise couldn’t afford, like a holiday, that may not be such a good idea.
Access your equity
Refinancing regularly can also mean you access equity in your portfolio, provided your properties have had some value growth.
If you have invested in a property for below market value, refinancing in the short term means you can use value gains to expand your wealth. It’s a great way to keep investing, or fund value adding renovations, without having to save cash every time for deposits.
Equity is the value of your asset, minus what you still owe on it. If you owe $200,000 on a property that’s worth $300,000, your equity is $100,000. But you can’t use the whole lot. A lender may allow you to use equity on 80% of the value of the asset, depending on individual risk factors and other circumstances.
Take the first step
The first thing to do is contact your Zinger Finance mortgage broker and find out the best deals on the market for someone in your financial situation.
Lenders reserve their best deals for new customers or existing customers who threaten to leave, and your mortgage broker will know all the latest offers and bonus features.
If you want to arm yourself with some knowledge first, there are numerous comparison websites that will give you the rates of many lenders in the one place, along with the features that might make or break the deal for you. Your broker can then talk you through the process in detail and help you understand what deals may or may not be available for you, as well as the deals that aren’t advertised that you might be able to unlock by having better loan to value ratios or other financial bargaining tools.
