How does refinancing work? It doesn’t have to be scary.

Have you been hearing all about these record low interest rates and thinking it might be time to refinance your home loan but are too afraid of dealing with the lenders and the endless amounts of paperwork? Well, we are here to help make things easy for you.

Firstly, we will help you understand when it is a good time to refinance and then talk you through the process involved. The best bit? You can skip right to the end and book a time with a Finspo Expert whose mission is to find a better deal for you and make the process as simple as possible. In no time you could be saving thousands of dollars each year and shaving years off the life of your home loan.

Sound good? Read on!

So, when is a good time to refinance?

Whenever you can save a dollar is a good place to start. Refinancing is often a great option for borrowers to access some better deals in market. Lenders love a lazy borrower who stays with them for years paying off their loan without ever challenging them to get a better deal. Albert Einstein once described compound interest as the “eighth wonder of the world… [They] who understands it, earns it; [they] who doesn’t, pays it”. That’s why it is so important to get on a great rate ASAP and often refinancing can be the answer.

Despite loans typically having a 30-year term, the average home loan duration for Australians is 4-5 years* and refinancing makes up a large part of this.

The most common reasons people refinance their home loan:

1. To get a lower interest rate

It’s not much of a secret that banks often charge their existing loyal customers much more than their new ones. In fact, the ACCC recently found that the longer you have your loan with your current lender, the more you pay. Read our article about how Loyalty to your current lender could be costing you $1,600 a year.

2. To access a cash-back offer

Did you know that many of the popular banks will offer you up to $4,000 just to switch your home loan to them? Woah! That is on top of any savings you are likely to make by also getting a lower interest rate. Of course, it is important to also recognise there may be costs associated with switching but often these are outweighed by the potential savings you could achieve.

3. To access equity (or cash) to pay for something important like a renovation

Equity is the difference between the value of your house and the size of the loan you have for that house. If you have been paying off your home loan for some time, chances are you will have quite a bit of equity available. And this could be even more than you think if your house has also increased in value.

For example, say you took out a loan 5 years ago of $600,000. At the time, the house you bought was worth $800,000. You have paid $50,000 off the principal through your regular repayments and the house value has increased by 20% in that time.

Your house is now worth $960,000 and you owe $450,000 meaning you have $410,000 equity in your home. By refinancing your loan, you could access some of this money to pay for that renovation you have always dreamed of.

4. Personal circumstances have changed

Often a life change event can be a good time to review your finances. This could be to simply reduce your expenses or lower your repayments or simply change the structure of the product you have. All of these are great reasons to book in a free home loan health check with a Finspo Expert who can take you through the A-Z of home loan refinancing.

So, how much could you save by refinancing?

Well let’s say you had a loan of $500,000 and the average interest rate of 2.96% p.a. This is the average rate for borrowers who live in their own house and make principal and interest repayments – the most common type of loan.

If you switched to a loan with an interest rate of 2.48% p.a. (the average interest rate for new loans like these in Australia), you would save $2,366 in the first 12 months. Let’s say you are also eligible for a $4,000 cash back offer and now we are talking a staggering $6,366 in potential savings in the first 12 months.

You will need to account for some fees during the process of refinancing such as:

  • mortgage discharge fees (payable to your local state government)
  • mortgage registration fee (payable to your local state government)
  • exit costs (payable to your current lender)
  • break costs if you are in a fixed rate loan (payable to your current lender
  • establishment fees (payable to your new lender)

The good news is that unless you are on a fixed rate loan with high break costs, then these typically only add up to less than $1,000 which means you will still be saving a lot of dough.

If you would like to get an understanding of how much you could save, check out Finspo’s market leading rate my rate tool which will help you understand how much you could save by refinancing your loan.

What’s involved in the refinance process?

This is the part where people typically give up because it is seen as being “too hard” or taking “too long”. But it doesn’t have to be. With the help of a Finspo Expert, you may be surprised at how little you have to do and how easy they can make it for you.

This is where we come in. At Finspo, we know it pays to have an expert in your corner to make this process as easy as possible and we make it our business to take the hassle out of refinancing.

The process is as simple as 1, 2, 3.

1. Book an appointment with a Finspo Expert
2. Tell us about yourself and provide the necessary documents
3. Consider our recommendation and choose your approach

From there, we’ll take over and do the heavy lifting with the paperwork and deal directly with the lender on your behalf. That’s right, you don’t even have to talk to the lender if you don’t want to!

I get it, but it still sounds too good to be true! Below we have summarised a number of the common reasons people still avoid refinancing and how we may still be able to help.

What we often hear… How Finspo can help…
Switching fees are going to sting!On average, switching fees add up to less than $1,000. Once you factor in potential interest savings through a lower rate our customers
can often still save around $2k in the first year alone (excluding any cash back offers they may also be eligible for).
There is just too much paperworkYou will need to provide supporting documentation and sign a few documents along the way after we have done the heavy lifting for you.
I need a fast approvalWe work with lenders to get you approved as fast as possible. Often within 48 hours of submitting a complete application.
Whole process takes too longWith all the documents provided, our Experts will help you start saving fast. Sometimes a refinance can be turned around in under 30 days.
Providing financial data is a painGreat news! We can automatically fetch most of your banking data and statements and will even work directly with your accountant if you are self-employed.
I don’t want the lender looking through all my
Finspo experts are knowledgeable and can give you a guide on your borrowing power before you start, or what you need to do before applying to get things on track.
I won’t save enough for it to be worthwhileYou might just be surprised. We have found those who refinance could save more than $2,000^ in the first 12 months given how competitive things are right now.
Talking with the bank…ughWe get it! Finspo has trained experts who deal with the lenders all day long, so you don’t have to!
I don’t even know where to startThat’s normal. Our friendly Finspo Experts are in your corner to help you understand all your options and make things clear and easy for you. No judgement here!

So, what are you waiting for?

All it takes is a little #finspo.

^Assumes an average loan size of $500,000, an interest rate saving of 0.5% p.a. and no fixed rate break fees.

*Finspo internal analysis of average Australian loan durations.

Finspo ABN 34 637 821 928 Australian Credit Licence 521120.

Things you need to know: This information is general only and is not intended to include any recommendation or suggestion about any particular credit product. It does not take into account your financial situation, requirements, and objectives. Please consider whether this information is right for you before making any decisions and seek professional tax or financial advice.

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