Yahoo Finance Refinancing? How to plan for the long term
It's one of the biggest loans you'll ever have to pay off, so wouldn't it be nice to save wherever possible.
If you have ever considered refinancing your mortgage, now is a very good time to do it. We currently have the best conditions seen in years, with interest rates set by the Reserve Bank of Australia at a record low of 2.5 per cent.
To sweeten the deal even more, the Aussie banks have stepped up their efforts to win new business by slashing rates. So with the interest rates as low as they are, it's a good time to consider what you may save over the lifetime of your mortgage by refinancing.
Lets take a closer look at whats involved.
What is refinancing?
When you refinance, you basically pay off your existing mortgage and create a new one. The most common reasons for refinancing include the chance to take advantage of a lower interest rate, the desire to switch from a variable rate loan to a fixed rate loan, or vice versa, and the desire to consolidate numerous debts into one. Whatever the reason may be for you, refinancing could put you a better position to tackle your mortgage debt. Get the ball rolling by comparing home loans with Moneyhound.
Related: Six smart financial moves to make when rates are low
What do I stand to gain?
The big banks are going to incredible lengths to sign you up by offering big incentives. In the short term, the biggest benefit is improved cash flow something everyone wants. You could be saving anywhere up to $200 a month on a $300,000 home loan. New features and packages are regularly coming onto the market, and they may suit you better than your current loan. Be sure to check the comparison rate, which includes all additional fees and charges.
Related: Cashback sweeteners with a bitter aftertaste
What hurdles do I need to look out for?
Refinancing looks like a great idea at first glance, but it does have its hazards and it needs to be carefully considered before you move forward. With factors such as exit fees and a new loan term, crunch the numbers to ensure youre actually better off. Its also worth talking to your current lender as they might be able to price match the new offer.
How long will I keep my mortgage?
As a home buyer or investor, the general rule of thumb is to recoup the cost of refinancing your home loan within 12 months, then reap the savings from the lower costs over the remaining term. Careful planning is a must if your refinancing strategy has any chance of success, so make sure that its beneficial to you in the long term before you proceed.
Related: How to prepare for rate rises
If your circumstances have changed, or youve had your home loan for a few years, refinancing can give you the opportunity to take advantage of more flexible features. By planning ahead you can put your hard-earned money back where it belongs, in your hip pocket.
Was this article useful? Use the feedback button below or comment and share your tips on our facebook page.
