When To Refinance
We are always being told to consolidate our superannuation, switch to low interest credit cards and discuss what our options are for the cheapest health insurance, not with industry experts, but with talking meerkats who oddly have European accents.
It can all be too much, but if there’s one thing that can either cost or save you a great sum of money over time, it’s a mortgage.
Don’t forget, for most people, a mortgage will be the biggest financial decision and commitment they make. Over 25 or 30 years, rate fluctuations either way will add up and flexible features can take years off a loan.
A lot of people get comfortable paying off their mortgage. The loan is sorted, you’re ahead on your payments, some people are saying there might be better deals out there, but all banks are pretty much the same right?
Why spend your weekends and evenings trawling through financial comparison websites, when you would rather be enjoying the home that you saved for so long and sacrificed so much to buy?
Well, when it comes to home ownership, it pays to have your eyes firmly on the prize. Both the property and lending markets can change significantly in just a few years. Just look at interest rates. Right now, you can get a variable rate on a home loan for around 5 per cent. Just two years ago, the average rate from major banks was 7.4 per cent.
If you have a loan of $350,000 and pay it off over 30 years, the difference between the two rates adds up to nearly $200,000 in total, once compound interest is taken into account. That’s close to $7,000 a year difference.
The situation might change in such a way between five and 10 times over the term of your home loan.
Every three years you should consider refinancing your mortgage. Other banks might have better rates or features, or you can consolidate other debts like car and credit cards into one low interest package. Rates are currently low, so it might be a good time to fix your interest.
You might also discover that over the last few years, your home has increased significantly in value.
That extra equity might allow you to put a deposit on an investment property, pay your own mortgage off sooner or carry out renovations on your home. It might also help with kids' school fees or a much needed holiday.
However, make sure you don't rush in. Research all the fees and conditions involved or a short term benefit can turn into pain down the track.
Tim McIntyre is the senior real estate reporter for the Daily Telegraph and News.com.au.
Over the past decade, he has attained widespread knowledge of Australia’s many unique property markets and is an authority on all things buying, selling and investing.
His commentary appears every Saturday in the Daily Telegraph Real Estate lift out, as well as online at news.com.au.