When you take out a home loan, you do not necessarily have to stick with the same loan for the whole term if you are not happy with it. Many Australians are refinancing their home loan in order to get a better deal. So how can you be sure that you will find a better deal?
Here are a few tips to help you work out what loan represents the best value when refinancing. The more you understand this yourself, the more money you will save. So if you are prepared to do some of the investigative work you stand to gain the biggest rewards.
Remember to look at features
A better interest rate may be able to save you money, but did you know that the features can also help save and pay off your loan sooner?
Features such as free redraw, offset account and unlimited extra repayments are just some examples of the features some lenders offer, free of charge. An offset account acts as a separate savings account that is linked to your loan. Your savings in the offset account reduces the interest that you pay on the loan. So instead of earning interest, you pay less interest on your loan. The funds in this account are still able to be used for everyday transactions. Free redraw is where you are able to deposit extra money into the loan however you can still withdraw this money for other transactions when you need to. Paying extra reduces the amount of interest that you pay as the amount owing is reduced. Having the right loan features can actually save you a lot of money in interest.
Visit comparison sites
Financial comparison websites such as Canstar and Ratecity rank a number of institutions and will help you quickly find out what lenders are offering. This is an easy way to compare some of the lenders with the most competitive loan options. You are then able to visit different lenders' websites to check out the loan features and other details.
Do you have any other debts that have high interest rates that you want to consolidate into a lower home loan rate? By refinancing and consolidating all of your debt, such as credit cards, car loans and personal loans, into one home loan, you may pay less interest, but it will also help keeping track of your finances a lot easier. One repayment can be easier to keep up with then multiple due dates for smaller debts. If you consolidate, the trick is to keep paying a similar amount each month that you were paying on all your debts. This way you will fast track paying off the extra amount you have added to your mortgage. If you "reward" yourself by dropping back to the minimum required, then you may end up paying more interest by spreading your debt over the term of your home loan.
Use online tools
If you prefer to do your own research before talking to a lender, there are plenty of free resources available on the interest. Online calculators are a great way to calculate different scenarios and how much money you could possibly save if you switched home loans. The range of calculators on the State Custodians website can help you do this.
You shouldn’t assume that just by switching home loans you will automatically save money. Before refinancing you need to make sure that not only will the interest rate save you money, but the home loan product as a whole is actually better suited to what you need.