Debbie Shankar - 22 May, 2018

The Benefits of Refinancing Your Home Loan

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When it comes to home loans, many of us don’t think about the benefits of refinancing, whilst others are simply afraid of what the process involves and are not prepared to refinance. But, most financial experts recommend that all home loan holders should review their home loan at least once every two years to ensure they are getting the best deal.

Why? Well, this ensures that the home loan holder has a home loan package that matches their financial and personal circumstances. Plus, situations can, and often do change. So, a home loan that met your needs two years ago may not be achieving the same results today. Let’s look at the benefits of refinancing your home loan now, so you can make an informed decision as to whether this is a possibility for you.

What are the Benefits of Refinancing?

With many Australians having a set-and-forget attitude towards their home loan, often they don’t review whether they have a competitive mortgage. As a result, they may be paying a higher interest rate and more per month than needed, or they may be paying for features that they don’t use.

Basically, refinancing could make your home loan more affordable, and it could help to save more long-term. But, don’t take our word for it, instead consider the top 8 benefits of refinancing, and then make up your mind.

1. Interest Rate Reduction

An interest rate reduction on your loan could make a significant difference to your monthly repayment obligations. This, in turn, can make home ownership more affordable and give you extra money for expenses each month. Plus, over the term of your loan, you could save thousands in interest, which can then go towards paying off your home loan principal. As a result, you’ll pay your home off faster and reduce any financial stress.

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2. Maximise Loan Features

Over time, home loans have grown and adapted to the market and client needs. Consequently, many home loans now come with features such as an offset account, redraw facility and a line of credit. For the home loan holder, this means greater flexibility and greater home loan management. Plus, these features can reduce the amount of interest paid and help to pay off home loans faster. These features are as follows:

  • Offset Account – A transaction account linked to your home loan, an offset account reduces your loan principal by the amount held in the account. For instance, if you have $25,000 in the account, and a home loan worth $225,000, then you’ll only pay interest on $200,000 of the loan. Over time, these accounts allow you to reduce the interest you pay, saving you more and increasing your cash flow.
  • Redraw Facility – Much like a savings account, the redraw facility enables you to pay more off your home loan, which can then be redrawn later if needed. Thus, when you have extra funds, you can pay more off your home loan. But, if you need those funds later, you can then draw on them without penalty.
  • Line of Credit– Much like a credit facility, the line-of-credit option gives you access to a pre-approved sum that you can draw on for any purpose, when and where you wish. Calculations for interest are only on the amount of credit you use.

3. Reduce Tax

If you’re an investor, then you can reduce your tax by restructuring your home loan/s. Firstly, all fees paid such as lender valuations, conveyancing, building inspections and mortgage title transfers are claimable. Secondly, ongoing lender fees, along with account keeping and administration expenses are also a tax deduction.

4. Consolidate Debt

By merging your credit card debt and personal loans into your home loan, you can reduce monthly repayment obligations and the amount of interest repaid. Debt consolidation, typically increases cash flow, and it allows you to manage your finances, so you can pay down your debt faster.

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5. Release Equity

Many homeowners have paid off a sizeable part of their home loan, and their property value has increased over their years of ownership. Consequently, the amount of equity they have created in their home has increased. By refinancing, you can release this equity and then use it to buy an investment property, renovate, or even finance an overseas holiday.

6. Adjust Loan Period

If you’re wanting to increase or decrease your loan period, then you can adjust the loan period to suit your needs when refinancing. Just remember that this can alter your repayments.

7. Change Rate Type

If you want to give yourself greater financial security or increase your cash flow, then refinancing to change rate type could help you achieve this. Some of the most popular options are shifting from a variable to a fixed rate or opting for an interest-only loan.

8. Reduce Annual Fees

Some lenders charge an annual fee to manage an account. Typically, these fees are between $295 to $395. While this doesn’t sound like a greater deal, over the term of a home loan, this adds considerable expense to the cost of the property. For instance, at $295 these fees equate to $8,800 over a 30-year loan or $11,850 at $395 per year. By refinancing to a lender that doesn’t charge these rates you could make a considerable saving, especially if you have investment properties and more than one loan. For example, let’s say you have an owner-occupier home loan and three investments. All these loans incur a $395 fee per year. Over 30-years this equates to $47,400 in fees.

Do you want to know more about the benefits of refinancing? Then contact eChoice, we can help you determine if refinancing is the right option for you. Plus, our brokers have access to 100’s of home loan products, so well find you a competitive mortgage.
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