When it comes to personal finance, there are many options to help you save money. One option that is available to Australians, particularly homebuyers, is refinancing. So, how exactly does refinancing help you save money?
If you're carrying high-interest debt, you may be able to save money by refinancing. Refinancing involves taking out a loan with a lower interest rate and using it to pay off your existing debt. You are essentially getting a new loan to replace your existing one. This new loan will typically have a lower interest rate than your original mortgage, saving you money monthly on your mortgage payment.
Additionally, you may be able to shorten the term of your loan, saving you money on interest and helping you become debt-free more quickly.
However, refinancing is not for everyone. You need to consider a few things, such as the type of debt you're carrying, the interest rate on your new loan, and the fees associated with refinancing. But if you're strategic about it, refinancing can be a great way to save money and get out of debt.
How Refinancing Can Help You Save Money
Refinancing can help you get a lower interest rate. That can save you money in the long run.
For example, let's say you have a $100,000 home loan with an interest rate of 5%. You decide to refinance your loan and are approved for a new loan with an interest rate of 4%. Over the course of the loan, you will save $1,000 in interest payments. In addition, the new loan may have a shorter term than the existing one, saving you even more money in the long run.
Refinancing can also help you switch from an adjustable to a fixed-rate mortgage. That can protect you from rising interest rates in the future and could save you a lot of money.
In addition, refinancing could also give you access to extra features and benefits that weren't available with your original home loan. For example, you may be able to find a home loan with a redraw facility, which could give you some much-needed financial flexibility down the track.
Finally, refinancing can help you get rid of expensive mortgage insurance. If you refinance into a loan with a lower loan-to-value ratio, you may no longer be required to pay mortgage insurance. That could save you hundreds of dollars every year.
In short, refinancing can be a great way to save money on your mortgage. If you're looking to save money, it's definitely worth considering.
How Much Exactly Can You Save?
The amount you can save by refinancing depends on a few factors, including:
- The interest rate you're currently paying: If you're paying a high interest rate, you'll stand to save more by refinancing than if you're already paying a low rate.
- The interest rate you can get: This will depend on your credit score and the current market conditions.
- The term of your loan: The longer the term of your loan, the more interest you'll pay over the life of the loan. So, if you can refinance to a shorter term, you could save a lot of money.
- The fees associated with refinancing: There are a few fees associated with refinancing, including application fees, valuation fees, and title transfer. These fees can add up, so be sure to compare them when shopping around for a new loan.
The bottom line is that the amount you can save by refinancing depends on your situation. However, if you're paying a high-interest rate and you can get a lower rate by refinancing, it's definitely worth considering.
It's important to remember that refinancing isn't right for everyone. Before making the switch, there are a few things to consider, such as exit fees, break costs, and potential LMI implications. That being said, if you're looking to save money on your home loan in Australia, refinancing could be an excellent option for you.
If you're looking to refinance your mortgage in Sydney, we can help. Wealthy You is an Australian Mortgage Company servicing Sydney for almost a decade. We offer a variety of mortgage solutions to meet your specific financial needs. As an alternative lending specialist, we make refinancing your home simple.