Not sure about the concept of refinancing? You’re not alone. This detailed post will help you grasp the fundamentals and discover your potential savings.
Home loan refinancing is currently a trending topic. Ever since interest rates began to rise in May 2022, an increasing number of homeowners – with estimates reaching as high as 28,000 each month – have turned their attention to refinancing. However, a significant number of Australians might be missing out on the savings offered by refinancing simply because they are uncertain about the process. Research conducted by Finder indicates that one in five individuals lacks knowledge about refinancing, with 63% admitting to having only “moderate confidence” in their understanding of it.
So, let’s delve into what refinancing entails and how it can potentially relieve financial pressure by putting money back in your pocket.
So what does refinancing actually mean?
Refinancing is essentially the process of replacing your existing mortgage with a new loan and a new lender. The process resembles what you did when you initially applied for your current loan. You select the loan you wish to switch to, submit a formal application, and provide documentation for income, expenses, and your ID documents. If the loan is approved, you can relax as the new lender takes care of paying off your old loan. Once that is settled, you begin making payments to the new bank. The good news is that the refinancing process can be surprisingly straightforward, and it often only takes about four weeks from start to finish.
Refinancing can relieve some home loan stress
Refinancing offers an opportunity to tap into home equity, enjoy better loan features, or consolidate various personal debts. Nevertheless, the primary motivation for refinancing is to save money by securing a lower interest rate on your loan. These savings can help alleviate financial stress for home-owners. According to Finder, 60% of those who refinanced reported experiencing stress about their home loan prior to making the switch. If this sounds like you, transitioning to a new loan could serve as an effective stress reliever.
So how much can you really save?
The potential savings from refinancing can be substantial. This is because many lenders are reserving their best offers for new customers. Presently, the average interest rate on established loans stands at 6.20%. However, new customers are more likely to secure an average rate of 5.99%. That’s an immediate reduction of 0.21% in interest rates, which is almost equivalent to reversing a single official rate hike.
So, what does this interest rate difference mean for your finances? As of now, the average loan being refinanced is valued at $526,093. With a 0.21% interest rate reduction, you could save over $70 on your monthly payments, which adds up to $840 in the first year alone, assuming a 30-year loan term. Why not see how much you can save by using our refinance savings calculator.
Is refinancing the right play for you?
If you’re starting to feel the pressure of rising interest rates, don’t hesitate to reach out to us at 1800-E-LOANS today to explore your refinancing options. We’ll help you in determining if refinancing is the right step for you and how much you could save by transitioning to a new loan and lender.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.