Refinancing your mortgage – Is it really worth it?

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Don’t let the fear of exit or refinance costs scare you…

According to Chris Straw, mortgage finance expert and co-founder of Youre Welcome Finance, one of Australia’s leading finance brokers, despite all the recent changes to the finance sector and Australia’s enjoyment of some of the lowest interest rates in history, refinancing still requires careful consideration. 

“There is no doubt, nearly every person I meet with to discuss refinancing their home loan is paying too much in interest on their mortgage,” Chris Straw said today. 

“In fact, some people I have helped to refinance their home loan have been paying tens of thousands of dollars too much each year. For a growing family that is a lot of money. Money that can be used on a holiday, or paying down the mortgage or putting into other wealth creation assets. 

“The problem is that many people take out a mortgage and then tend to stick with their home loan provider for many years without realising that their rate has quietly crept up. By this time, they have paid way too much for their home loan and have effectively lost quite a lot of money.”
Comparative rates across the home loan sector show that there is a wide range of interest rates and products available. Rates vary from as little as 3.4% to 6% and higher.  
“I suppose this is the benefit of working with a broker rather than a single finance institution. When you work with a broker, you get to see all the products and rates available and gain a better understanding of what your options truly are,” Chris Straw added. 
“While refinancing does seem like a big thing to do, it is actually one of the best things you can do if you want to stop paying too much interest. In effect, you are losing money. You are throwing it away on interest when you could be using it for other things.
“There are some key things to look at when refinancing and a broker can help you to work through these things:
  • what types of better rates and products are available on the market which suit your circumstance
  • look at your existing loan product and work out what type of exit fees you may have to pay.  These may include penalties, bank discharge fees, and mortgage discharge fees
  • work out what your new mortgage is going to cost to set up.   This may include bank application fees, valuation fees, preparation and registration of mortgage documentation fees
  • work out the difference and the net result
An example may be that you may find is that refinancing your mortgage may cost $1000, however, the money you may save per year in interest costs is $5,000. Over the life of a 20 year loan, this could be $100,000.
“Refinancing can save you a lot of money. Is it really worth it? Absolutely yes.   
“Which is why banks will try and reduce the interest rate for you when you tell them you are leaving. Even if they offer to reduce it a little, chances are they are still not going to reduce it enough for it to be financially beneficial for you.

“My advice is, don’t let the fear of exit or refinance costs scare you. It is more than likely you are paying way too much and refinancing could end up saving you lots of money.”

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