Tuesday, March 19, 2019

refinance

Everyone wants to pay less on their mortgage and refinancing is one strategy that can help lower your interest rates, but is it worth it? We take a look at how you can get the most out of refinancing. 

Why refinance?

Generally, people refinance to negotiate a better deal on their home loan and pay it off sooner. Depending on your situation, you should be able to save money by taking advantage of lower rates or new products that were not available when you first negotiated your home loan. 

To help put it into perspective, let's say you previously took out a $300,000 loan at 7.5% over 30 years with monthly repayments of $2,098. If you refinanced to a new loan at 4%, you could save $239,543 ($665 per month) over the life of the loan by making the minimum repayments of $1,432 per month. 

Once you have refinanced, if you continue making the same minimum repayments as your previous loan ($2,098 per month) you will potentially save $346,912 and pay off your mortgage 165 months early. 

Make it work for you

Take advantage of your refinance loan by:

  • Consolidating debts: Home loan interest rates are often lower than those for other forms of credit, so you can save money by consolidating debts such as credit cards or personal loans into your mortgage. Beware, however, paying off a short-term loan over a longer period will likely incur extra interest and fees over the longer term. Put the money saved from consolidating your debts into your mortgage as if you were still repaying the other debts to reduce the overall debt faster. 
  • 'Splitting' your loan: Nominate a portion to be charged at a fixed rate of interest for a set period of time, with the balance charged at a variable interest rate. When the fixed rate period ends, the loan reverts to the variable interest rate. You will benefit from the security of the fixed rate and flexibility of a variable rate loan, and are impacted less if interest rates rise. 
  • Having an offset account: The balance of your offset account is subtracted from the remaining principal amount before interest is applied, meaning you spend less on interest over the course of your loan. 
  • Making extra repayments: Any payments made on top of your regular repayment will save money by reducing the amount of interest you will pay. 

When should you consider refinancing? 

Life brings change and your mortgage needs to keep up - maybe you now have a partner, a young family, a new job that pays more or have become empty nesters with extra cash on your hands. If the terms of your current loan do not allow you to pay more (or less) on your principal amount, it could be worth considering refinancing into a more flexible arrangement. 

Refinancing or loan switching can save money but you might incur costs such as exit and establishment fees, government charges and administrative or legal expenses. These costs need to be weighed against the benefits to determine if you will save in the long run. 

Today's home loan market is very competitive and there might be a loan out there offering the features and flexibility you want. Before you make any decisions, be clear on your reasons for refinancing. It is also a good idea to speak to an experienced mortgage broker or financial expert to ensure you are making the right move for your financial situation. 

 

budget

It is all too easy to rack up debt - credit cards, HECS, car loans - and may seem all to hard to pay it off. Debt can also have a big impact on how much money you can borrow for a home loan, so reducing your debt is essential when you set out to buy your first home.

Here are seven steps you can take towards minimsing your debt and moving into the property market. 

1. Work out how much you are spending

Create a spreadsheet and track your expenses for a month - record everything so you can see where your money is going. You may be spending much more than you think on some things, more than you can really afford. 

2. Decide where you can cut back

With a clear idea on how much you spend on each month, you can figure out how much you really need to spend and where you can cut back. That second coffee everyday could be costing you $20 a week, that's $1,000 a year! Buying your lunch rather than bringing it could cost you $2,500 a year. Buying one less bottle of wine a week could save you another $1,200 a year. With a bit of commitment, you can rein in your spending and have more money to repay debt. 

3. Make a budget

The only way to get on top of your credit cards is to stop using them. Make a budget for the money you need to spend each week or fortnight, based on how much money is coming in and what your necessary expenses are and stick to it. 

Calculate how much is left over after you have paid for the necessities, then figure out how much you want for discretionary spending and how much you can put towards repaying debt. Also, put money into a contingency fund to cover unexpected expenses such as car repairs that could bust your budget and cause you to reach for the credit card. 

4. Prioritise your debt

Work out how much money you actually owe on credit cards and loans - you may not realise how much it is. When you. know how much debt you are in, you can think more realistically about repaying it. 

You need to pay at least the minimum amount due on all credit cards each month to avoide going backwards and in soem cases being charged fees and penalties. But by paying only the minimum, you may never get the cards paid off, you need to pay more to make progress. 

Consider:

  • paying high interest credit cards and loans first to save on interest
  • paying smaller debts first to give you the sense that you are getting ahead and that paying off debt is possible

5. Make a repayment plan

Armed with your budget and having worked out your debt priorities, you can plan which debts you will pay off over what period of time. Having a plan will increase your sense of control over your debt; sticking to it will increase your sense of achievement. 

6. Set goals and celebrate them

The thought of paying off all your debt may be daunting, so breaking it down into milestones will help you see the way ahead. Set goals such as paying off 10%, then paying off 25% and so on. 

Remember to celebrate each time you reach a milestone - buy yourself lunch or go to a movie as a small reward for your achievement. 

7. Stick to the plan and ride out the setbacks

Keep going wiht your repayment plan. If you miss a payment because of an unforeseen expense, stay positive. Avoid feeling demoralised or derailed by looking forward to the next debt milstone - you can get there!

 

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Contact Details

Zippy Finance 

PO Box 3078
North Turramurra
NSW 2074

T 1300 855 022 

Louisa Sanghera is a credit representative (437236) of BLSSA Pty Ltd ACN 117 651 760.  Australian Credit Licence 391237. ABN 85 168 278 975.

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