5 reasons you must refinance your home loan: RateCity
SPONSORED POST
Don’t make the mistake of setting your mortgage and forgetting about it for the next 25 years – because it could cost you dearly.
One obvious benefit of refinancing is that it gives you the chance to switch to a cheaper rate. Don’t forget, home loans are always changing, so even if you got the cheapest rate when you took out your mortgage, there’s a good chance that’s no longer the case.
Another benefit of refinancing is that it could allow you to access more flexible repayment terms, unlock equity to fund an investment property and consolidate a range of debts.
RateCity has made it easy to change lenders with its Switch & Save Sale. Here are the top five reasons to take part:
1. Change to a cheaper home loan
Refinancing into a cheaper mortgage makes obvious sense. However, sometimes people don’t realise how much money they could save.
Imagine you had an interest rate of 4.25 per cent on a $400,000 mortgage that you were repaying at the rate of $2,500 per month. If you switched to a rate of 4.00 per cent and left your monthly repayments unchanged, your loan term would be reduced from 19 years and nine months to 19 years and two months. That would allow you to eliminate seven months of repayments, for a $17,500 saving.
2. Change to a better home loan
Another advantage of refinancing is that it can allow you to move to switch to a more flexible mortgage.
That could allow you to access new features such as an offset account, a redraw facility, the ability to make extra repayments or even the ability to take a repayment holiday. You could also move to a fixed rate or move to a variable rate or move to a loan that is half and half.
3. Unlock equity to fund an investment property
In certain circumstances, refinancing your home will allow you to access extra funds that you could then use as a deposit on an investment property.
To unlock extra equity, you need to get a new valuation on your home when you refinance, and that new valuation needs to be higher than the old one.
Imagine you originally borrowed $400,000 to purchase a $500,000 property – that would have given you a loan-to-valuation (LVR) ratio of 80 per cent. Now imagine you’ve since reduced your mortgage to $370,000 while the value of your home has risen to $550,000 – that would give you a new LVR of 67 per cent.
If your new lender allows you to increase your LVR to 80 per cent, you could increase your mortgage from $370,000 to $440,000. That extra $70,000 could then be used as a deposit on an investment property.
4. Unlock equity to fund other expenses
Of course, there are other ways you could spend that hypothetical $70,000 mentioned above. You could use it to fund value-adding renovations. You could use it to replace your old car. Or you could put it into an offset account and spend it several years in the future.
5. Consolidate debt
Imagine you were currently paying off a $370,000 mortgage at 4.25 percent, a $25,000 personal loan at 9.75 percent and a $15,000 credit card debt at 16.50 percent.
A new lender might allow you to refinance those three debts into a single $410,000 mortgage. Even if your new home loan was still priced at 4.25 percent, this sort of consolidation would not only make your life simpler, it would also allow you to repay the personal loan and credit card at a much cheaper rate.
Refinancing made easy
RateCity is simplifying the refinancing process with its Switch & Save Sale, which will give borrowers access to market-leading rates.
Borrowers who are with ANZ, Commonwealth Bank, NAB or Westpac could save up to $39,000 over 15 years by switching through the Switch & Save Sale.
RateCity arrived at that figure after calculating how much borrowers would save if they switched from an average-sized mortgage from the average discounted variable rate offered by one of the big four banks to the lowest variable rate in the Switch & Save Sale.