Refinancing your home loan is one of those things that some of us continue placing in the too hard basket. We either feel daunted by the process, or just keep putting it off, justifying to ourselves that we just don’t have the time. But the great news is, that by enlisting the services of a professional this process will take minimal time and can remove all the anxiety you may feel about the process.
Keeping up to date with the adequacy of your home loan may sound boring but it pays huge dividends for your financial future. By making the right choices now you can take a giant leap towards achieving your financial goals in the future.
There are many reasons to refinance, but in the current economic climate with interest rates at all-time lows let’s focus on how refinancing to a lower interest rate will improve your financial position:
Lowering your interest rate = increased wealth
Let’s assume that you have a $500,000 home loan with 28 years remaining and you are currently paying an interest rate of 3.6% per annum (Your repayments are $2,364 per month).
If you were to refinance to XYZ Bank for an interest rate of 2.5% with the same 28-year term you could save the following:
Option 1 – Pay the new minimum repayment
Due to your drop-in interest rate your minimum monthly repayments would drop to $2,071 which would enable you to free up $293 per month to direct towards other expenses or financial goals. By lowering your interest rate, you will be able to free up cashflow for changes that may have happened in your life or create the ability to direct funds to one of your other financial goals, all without changing the life of the loan.
But in addition to the monthly saving, you would also save a whopping $98,573 in interest over the life of your loan.
Option 2 – Refinance but continue to pay the same repayments as you are now.
Everyone’s financial situations are different, and you may find yourself in a position where your current repayments are quite manageable, and you have no problem paying the $2,364 per month in repayments. Great!
Due to your ability to continue to pay the same repayments, but lowering the interest rate you pay, you would be able to save $131,674 in interest over the life of your loan, and if that’s not enough to get you excited, as a bonus your loan would be paid off five years earlier.
As you can see above no matter which option you choose to suit your financial situation by considering refinancing you may be unlocking a better financial future resulting from a small amount of work.
On your journey to financial freedom, you will find growing wealth is not always about how much money you make, but how well you avoid throwing it away. So next time you open your internet banking, ask yourself are you getting the best deal for your future?
