Your Top 4 Refinance Questions Answered!
Will I Actually Reduce My Costs?
The main reason people refinance is to lower their interest rate, however to assess if you are actually going to come out in front it is important to assess all factors; rate; product flexibility; longevity of the loan; costs and fees.
Sam and Ben have a home loan of $300,000 with a current interest rate is 7.87% ($2,290 per month). They pay $5 per month account fees ($60 per annum). So, for a 12 month period their costs are $27,540. The exit fee on their existing loan is $600.
They want to lower the interest rate and have a lump sum of funds to deposit into an offset account. They are looking for a more flexible retail lender as Sam needs counter access. They have found a loan for 6.90% with a $600 application fee and a $10 per month offset account which looks attractive.
By refinancing their existing loan, the repayments lower by $188 per month to $2,102, saving $2,388 per annum. The offset will cost $10 per month, so their annual costs would be $25,344 per annum, saving a total of $2,196, but they will also benefit with the use of the offset account.
Loan exit and application fees were $1,200 so in the first year of the loan, they have still saved $996. However in the second year the saving increases by $1,200, plus the interest benefit of the offset account.
How Can I Access My Equity?
Most lenders offer refinancing product options up to 90% of the property value, which enables you to increase your loan to access this available equity. In most cases the new lender will complete a valuation on the property to ensure they are satisfied with the value of the property.
Be aware that lending policy and products vary from bank to bank for Line of Credit, Equity or Cash Out loan requests, so to get the best outcome, it may be a good idea to talk to a broker prior to making an application to gain feedback on which lender suits your circumstances.
Can I Consolidate Debt When I Refinance?
Refinancing to Consolidate Debt is very popular and can save thousands of dollars in unnecessary interest. If you have equity within your property and have one or more other monthly repayments of; personal or car loans and credit or store cards, then you can increase your loan when you refinance to pay them out and roll them into one simple monthly repayment at a home loan interest rate.
How Can I Pay My Home Loan Off Faster?
Home owners have definitely paid their home loans off faster by getting their loan structure right, lowering their interest rate and consolidated existing debts. In most cases it is through a combination of these processes, coupled with sound cash flow management that homes can be paid out in record time.
Loan products can facilitate interest reduction further and unique lending products such as Offset Accounts and Redraw Facilities have become increasingly popular and are changing the way many operate the average home loan. Splitting loans into fixed and variable as well as combining principle and interest or interest only portions is now common practice.
The lending market offers a myriad of consumer choices and refinancing benefits will generally be more worthwhile when more than just the interest rate savings are considered.