When refinancing makes sense
With rates having dropped substantially recently, and many clients feeling the squeeze from the increased cost of living, I'm finding a lot of clients are coming to me seeking to lower their outgoings to free up and improve their cash flow. For many clients, it's a case of either lowering costs, or being forced to sell their home, as their lending won't be sustainable for them. Often this is a result of not being able to sell a rental property, due to the stagnant property market.
To achieve improved cashflow, sometimes extending your loan term is the best viable option. Whilst it's not ideal, as it will mean you'll have a mortgage for longer, and as a result pay more interest, the advantages of lowering repayments can be the difference between keeping or losing a home.
It's also a great opportunity to restructure lending in a way that works smarter for you, such as utilising 'offset' loans, where you can have savings accounts linked to your mortgage, and instead of earning interest, the savings account balances reduce the interest paid on your mortgage.
Refinancing can also mean a fresh 'cash contribution' - free money from the bank to say thank you for taking out your loan with them. This is usually 0.85% of the total lending (so, for a mortgage of $500,000, expect a cash contribution of $4,250).
Extending a loan term, coupled with taking advantage of lower interest rates and smarter loan features, can significantly reduce repayments. Some recent examples from clients I've assisted:
Couple with own home and investment property, looking to free up cash flow. Refinanced and went from repayments of $10,700/m to $6,500/m by utilising lower rates and extended loan term. Even though they needed to repay a previous cash contribution to their old bank, they still came out +$4,000 ahead with their new cash contribution.
Couple with a rental and own home, refinanced, topped-up mortgage to renovate bathroom, and slightly extended loan term. Reduced repayments by over $500/fn and set clients up with structure that allows for lump sum repayments without penalty in line with when work bonuses are expected. Clients ended up +$11,000 ahead thanks to a fresh cash contribution.
Of course the goal is always to pay off debt as soon as possible, so structuring lending in a way that works for you and allows you to adapt based on the challenges life throws at you is important - but refinancing can be a great way to get on top of your lending, and put some money in the bank with a fresh cash contribution.
Want to run the numbers on your own mortgage, to see if it makes sense? Just reach out.
This is not personalised financial advice, and nothing mentioned here should be acted upon without first seeking personalised financial advice from a suitably qualified professional.
