Are you too loyal to your bank? Banks only offer the best interest rates to new customers. Chances are, If you’ve been with the same bank for a number of years, you’re paying a loyalty tax. On a $500,000 mortgage of 30 years, you could save more than $30,000 on interest over the life of the loan with a tweak to your interest rate of just 0.2%

What is refinancing?

When you refinance, you are replacing your existing mortgage with another. In practice, you would be applying for a new mortgage and using this to replace your existing mortgage. You can refinance using another lender entirely, or by choosing a different loan product with your existing lender.

Why bother refinancing?

Regardless of whether you would prefer to stay with your current lender, there are many benefits to refinancing your mortgage. These include:

• Securing a lower interest rate – Negotiating a lower interest rate would save you money by either:
  • i) reducing your monthly loan repayments (i.e. reducing the interest component), or
  • ii) if your monthly contributions are kept the same, paying more principal than interest.

Given the benefits of compounding over time, the savings could be enormous.

• • Restructuring your finances – Your personal goals may have evolved since you entered into your existing mortgage. You may want to:
    • Unlock equity to fund a new property acquisition by taking out an additional loan amount against your mortgage.
    • Reduce the number of loan facilities you’ve taken out by drawing on your principal (i.e. debt consolidation). This may make financial sense if you are paying higher amounts of interest on credit cards, car loans or other personal loans. By transferring your debt to a facility that attracts a lower interest rate, you would be lessening strain on your finances.
    • Switch loan products from interest-only to principal-and-interest (P&I) to start contributing additional equity to your property, if you aren’t already.
    • Switch from fixed to variable interest rates, or vice-versa, depending on whether you are more comfortable with knowing what interest rate your bank will charge you, or if you think interest rates will decrease in the near future.

How much does refinancing cost?

Refinancing costs are generally low and vary depending on your personal circumstances and the lenders involved.

We have listed potential refinancing costs as follows:

• • Break costs – Some lenders charge you break fees if you switch products within a period of time where the loan is on a fixed rate.
  • Administration fees – These may include discharge fees charged by the current lender and application fees charged by the new lender. This may include the cost of a valuation report, but most lenders pay for this themselves.
  • Land registration – These charges cover the cost of removing the current mortgage and registration of the new mortgage.

Refinancing is quick and easy with a trusted mortgage adviser.
Call us now for an assessment and guidance on next steps, at no cost to you.