Quick Refinance Guide

Quick refinance guide

Like most positive changes in your life, at first it can seem daunting, but once it’s done you were left wondering why on earth didn’t you do it sooner.

 

It can be helpful to consider what your time is worth. If the benefit outweighs the investment of time then ask yourself, why wait any longer.

 

Refinancing can be worthwhile for various reasons and even small changes in rate can have a profound impact on your pocket. Here are the top reason broke down:

  • Lower repayments

  • Repay loan sooner

  • Protect against rate increases

  • Simplify debt

  • Top up for something else

  • Renovate

  • Release equity

 

Lower Repayments

Finding out you’ve been unnecessarily throwing money at your banker is a nightmare that can make most want to bury their heads in the sand.

 

Our first tip is be kind on yourself and remember it’s not your fault. A recent productivity commission found that banks systematically work to increase you rates above what they are offering new customers. Here’s what you can do.

 

Lowering a 4.2% p.a. interest rate by just 50 points to 3.70%p.a.  would mean almost $100 extra in your pocket every month for a $350,000 loan with 25 years remaining.

 

Extending the term of that same loan to 30 years would reduce repayments by a further $179 a month. But be careful - adding years to your loan will add a lot more interest to your total mortgage repayments.

 

Repay Loan sooner

Small changes to your loan early on can have a big impact on your loan term. That’s because home loans are compound interest equations. Which basically means you’re paying interest on interest on interest….

 

For example

By increasing your monthly loan repayments by just 10% a month from day 1 of an example mortgage (say 30 year, $350,000 mortgage at 3.7%) you would save about 4.5 years off your term and $39,500 in interest.

 

But wait just 5 years to start paying the 10% extra and you'll miss out on a third of those savings, That's about 1.2 years and more than $13,000 in interest savings.

Reinvesting interest saved from a lower rate as soon as possible could mean years off your mortgage.

 

Just 50 basis points over a 25 year mortgage would free you 2+ years earlier from your mortgage. Now what would retiring 2 years earlier mean to you?

 

Protect against rate increases

If what goes up must come down - so must what goes down come up. Or at least that’s what the long term forecast for rates in Australia is.

 

Interest rates in Australia have never been lower. But pressure is mounting and according to many, as soon as the economy strengthens rates are on their way up again.

 

Fixed rates typically move ahead of variable. This means if you’re thinking it’s time to fix, the market will already be ahead of you.

 

Unless you think rates are on their way down, now might just be the time to beat the market.

 

Pro tip: Look for a flexible-fixed option if it’s available. Flexible fixed rates are fixed, but come with a 100% offset account so you still have the flexibility to repay extra and redraw when you want.

  • Grey Facebook Icon
  • Grey LinkedIn Icon

© 2018 Parker Lane. 

Parker Lane is a trading name of Upside Downside Pty Ltd. Australian Credit License Number 482276

The information contained in this website may not be current or complete, or may not remain current or complete, and therefore under no circumstances should be relied upon. No warranty or representations as to its accuracy or completeness is provided. We are not liable to your or any other person for loss, damage or injury arising from the use of, or reliance on, this information, including but not limited to loss suffered in connection with incorrect or out of date information. It is not intended to be a substitute for professional financial advice and does not purport to guarantee any projected amount of borrowings. All applications for credit are subject to normal credit approval criteria. Parker Lane specifically disclaims any responsibility or liability for any losses or damages arising from any use of or reliance upon any calculations or conclusions reached using this website. See our credit guide for further details.