Hey, I hate to break it to you, but you’re probably throwing your money down the drain. ‘Now why would you accuse me of a thing like that, Andrew?’ you ask. I’m not intentionally trying to wind you up. It’s just a matter of tough love.
According to the last Census in 2011, if you’re part of the 30% of Australians who experience mortgage stress, you’re putting away more than 30% of your pre-tax income on paying off your mortgage. And in a place like Sydney, it’s quite an easy thing to do. Houses are on average over $1 million.
Which is why you need to reassess your home loan, and ask yourself if refinancing is worth it to you.
Here’s a hot tip from me: you’re in with a chance if you have a professional mortgage broker weigh up the pros and cons of jumping ship. This all depends on your personal circumstances, but honestly, it’s well worth a check!
So sit down, and grab a pen, or take some mental notes. Refinancing your home loan is not as hard as you make it out to be.
The lazy person tax
When a homeowner is paying too much to the banks and doesn’t see a problem with this, I call it the Lazy Tax. A lazy person could be paying up to 1% more than they should be. On a $400,000 home loan this is around $4,000 per year- Do not pay the lazy tax! Refinancing your home loan – if you’re paying too much already, of course – only reaps benefits. You could be saving thousands that you can spend on a holiday, new shoes, Bondi Icebergs or another investment property.
Banks give their best rates to new customers. When you’re not a new customer anymore you need to hold them to account. Vote with your wallet!
The refinancing process is as easy as this
So interest rates have dropped significantly since you first took out your home loan, and you want to take advantage of some sweet savings. Here’s what usually happens when you contact your friendly Sydney mortgage broker to refinance your home loan:
- The mortgage review – we’ll take a look at your existing mortgage and how it’s structured. Is fixed interest better for you than a variable rate? What can you afford to pay every month? Refinancing a home loan isn’t an option for everyone, and in fact, could cost you more. Which is why this initial review is so important.
- The big reveal – after we’ve reviewed your current home loan, we’ll have a two-hour meeting to discuss where we can get you some savings. We’ll discuss different loan structures, potential lenders, and then if we’re ready, apply for the right mortgage for you.
Potential fees to think about
- Establishment fees – A standard fee for all the paper work required – normally $200.
- Discharge fees – Fees charged by your current lender to pay out the existing loan and to prepare the required documentation – normally $300.
- Mortgage registration fees – These are the fees to remove the existing mortgage from your current lender and register a new mortgage to your new lender – around $220.
Sometimes the fees are more, sometimes they are less. But if you’re going to save thousands per year, a few hundred in fees (which can be added to the new loan) is worth it.
Not so unlikely tricks to look out for
- Deals that sound too good to be true. A competing lender’s interest rates may look like your best bet at first glance, but might not have the same features as your current lender. Make sure it’s not an introductory rate for the first part of the loan. Will you be able to make extra repayments or take out free redraws?
- Smaller lenders without credibility. Stick to the big brand names, because it’s not worth taking a gamble with your biggest financial commitment.
- Amazing rates. Interest rates are important, but ensuring you have a home loan that’s structured right for you is also key to making sure you save as much as possible.
Refinancing your home loan is a great way to take the stress out of your monthly repayments. It’s not an option for everyone, but luckily, having a friendly Sydney mortgage broker check for you is!