Myth Busting – Understanding Refinancing Myths
Homeowners are used to staying put with their home loan, but for those that are willing to look around, there can be a lot to gain from a competitive industry.
When it comes to refinancing, it pays to separate the myth from the fact. The financing business has always been seen as full of complicated maths, and well, a bit too hard. But it turns out, if you’re willing to look beyond the myths, there are benefits to reap.
Refinancing Myth #1: Refinancing is complicated
The plain truth is far from it. There is a some work that needs to be done to get things sorted out in the first place, to set you off on the right track, but that is something that your mortgage broker can give you a hand with. Plus, a little bit of work now can be well worth it in the long term.
It’s ok, you’re not left alone to do all the maths on your own and come up with a magical solution. Refinancing and finding the right financial option for you is something your broker can help you figure out. So, leave the numbers to the experts as you get set to find your financial mojo and get your mortgage in order.
Refinancing Myth #2: Refinancing is not for me!
And that is what 75% of Australian homeowners think as they sit, content with their home loans. The remaining 25% are the happy ones who decide to take charge of their finances and potentially save thousands of dollars in the process.
Refinancing your home loan is not something reserved for just a few people – if you have a mortgage, you deserve a better deal. Many homeowners are completely in the dark about the terms of their mortgage and have no idea whether their interest rate is too high or not. The thing is, people get busy with their lives, especially after getting a home loan and moving house. But, it pays to look back and check that the loan they’ve gotten into isn’t financing the banking industry with their exorbitant home loan repayments rather than financing their own homes!
If you have a home loan, you deserve to know where you stand in terms of your finances and make the right choices for your financial life.
Refinancing Myth #3 – You don’t save much with interest rates just 0.50%p.a. lower
That’s the theory floated around by people who think home refinancing is not for them. When you layout all the figures with the help of a mortgage broker though, you’ll see that an interest rate just 0.50%p.a. lower could end up saving you thousands of dollars in the long run.
Imagine if you decided to switch from a 5.50%p.a. interest rate to an interest rate of 5.00%p.a. on a $500,000 mortgage over 30 years. The difference in interest rate is just 0.50%p.a., but that could mean a reduction of close to $55,000 over the life of your home loan, which would be over $150 saved every month - wow.
Before you jump in though, don’t forget to factor in ongoing costs like annual fees on your loan.
When you’re looking at refinancing make sure you factor in all the other things that come with your new loan like additional features and flexibility. When you consider the whole package, you just might find you’re onto a winner.
Refinancing Myth #4 – Fixed rate home loans are not eligible for refinancing
We think this myth might come from the term “fixed” rate – “if it’s fixed, it can’t be changed”! But fixed rate doesn’t actually mean your home loan terms have been set in stone – what it really means is that your current mortgage is set at a fixed interest rate and there’s normally a fee to pay if you want to break the mortgage within a certain timeframe.
The typical lock-in period for fixed rate home loans tends to between 1 to 5 years. When you sign up for a fixed rate loan you get to lock in the interest rate you want for a set period of time and your lender counts on you being around for that whole time. The break fee you pay covers any losses your old lender might face by you breaking your fixed term contract earlier than originally agreed.
However, that doesn’t mean that you can’t gain from mortgage refinancing. That said, there’s a bit of calculation involved, and you may want to consult a mortgage expert to weigh the costs against the benefits before you make the decision to change
The bottom line is there are no substitutes for hard facts and real math, and you may end up being rewarded for looking beyond the myths in refinancing. Talk to an expert and get smart about your financial future.