Interest rates: How to save $12k by refinancing your mortgage
Aussies could save thousands by refinancing their home loan. Here’s how to do it.
Aussies have been hit with yet another interest rate rise, but there’s one move that could save you thousands on your home loan.
The Reserve Bank of Australia (RBA) hiked the cash rate to 3.60 per cent yesterday. For an Aussie with a $500,000 loan and 25 years remaining, this move will increase their monthly repayments by $77 - or $983 in total since the rate rises began in May last year.
RateCity analysis found Aussies could save up to $12,401 in the next two years by refinancing to a lower rate. This is based on the borrower above switching from the average rate of 6.36 per cent to a rate of 5 per cent, and includes fees for switching.
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RateCity research director Sally Tindall said refinancing could be a “silver bullet” for family budgets, but acknowledged not everyone would be in a position to switch.
“A borrower who can switch from 6.36 per cent, down to a rate of around 5 per cent can reverse more than five standard RBA hikes just by refinancing,” Tindall said.
“Imagine winding back the clock to around September of last year, when the budget was starting to get tight but still broadly manageable. That’s the type of relief refinancing can potentially bring.”
How to refinance
So, where do you start? Well, according to author of Kill Bills and Easy Money Joel Gibson, the first thing to do is contact your bank.
“Ask them what the best deal is they can offer you when you are refinancing,” Gibson told Yahoo Finance.
The next thing is checking what other lenders are offering. This can be done through a mortgage broker or online comparison sites like RateCity and Canstar.
“Brokers can be good at knowing what banks are likely to lend you, which loans you are likely to qualify for and can save you a lot of time that way,” Gibson said.
You’ll need to factor in any fees and costs associated with refinancing. You can also ask your new lender if they will waive any of them. Many lenders also offer cashback deals of around $3,000 or $4,000 for refinancing, but it can be more important to focus on the rate on offer.
“A lower rate is worth much more because it might go for 25 years, whereas the cashback is a one-off bonus,” Gibson said.
Gibson said to start the refinancing process a month before your fixed rate ended or when you planned to switch.
“Even though it takes longer than switching your electricity or mobile plan, the potential savings from putting a bit of time into getting a low mortgage rate are in the thousands over time,” he said.
For Aussies who aren’t in a position to refinance, Gibson recommended negotiating hard with your lender and considering getting advice from a broker.
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