Not sure what refinancing is all about? You’re not alone. Our quick explainer lets you master the basics and helps you work out how much you could save.
Home loan refinancing is a hot topic right now.
Ever since interest rates hit an upward trajectory in May 2022, skyrocketing numbers of homeowners – as many as 28,000 each month – have turned their attention to refinancing.
However, plenty of Australians could be missing out on the savings of refinancing simply because they’re unsure of what’s involved.
Research by Finder shows one-in-five people are in the dark about refinancing, while 63% admit to being only “slightly confident” in their knowledge of refinancing.
So, let’s take a quick look at what refinancing is, and how it can reduce stress by potentially putting cash back in your pocket.
What does refinancing mean?
Refinancing simply means replacing your old mortgage with a new loan and lender.
The process is similar to the one you followed to apply for your current loan.
You decide the loan you’d like to switch to, make a formal application, and provide evidence of income, expenses, and your personal ID.
If the loan is approved, you can sit back and relax as the new lender arranges to pay out your old loan. When that’s taken care of, you just start making repayments to the new bank.
Refinancing can be a surprisingly simple process. Better still, it can all happen very quickly, usually taking about four weeks from start to finish.
Refinancing can be a stress buster
Refinancing can be an opportunity to access home equity, enjoy better loan features, or consolidate several personal debts.
But the number one reason for refinancing is to save money by paying a lower loan interest rate. Those savings can help take the financial pressure off homeowners.
According to Finder, 60% of refinancers admitted to being stressed about their home loan before deciding to switch.
If that sounds like you, making the move to a new loan could be a valuable stress buster.
How much could you save by refinancing?
Potentially, a lot!
That’s because lenders are still saving their best deals for new customers.
The average rate on established loans is currently 6.20%. But if you’re a new customer, you’re more likely to pay an average rate of 5.99%.
That’s an instant saving of 0.21% interest. Think of it as reversing almost one official rate hike.
So what does that rate difference mean for your hip pocket?
Right now, the average loan being refinanced is worth $526,093. On that balance, a 0.21% rate saving could slash more than $70 off each monthly repayment, which equates to $840 in the first year alone, assuming a 30-year loan term.
Is refinancing right for you?
If you’re starting to feel the interest rate squeeze, give us a call today to discuss your refinancing options.
We’ll help you work out if refinancing is the right step for you and how much you could save by switching to a new loan and lender.
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