INSIGHT

November 2016

4 reasons why it makes sense to refinance

With interest rates at an all-time low, it's not surprising ABS data1 showed a surge in the number of Australians refinancing their mortgages in 2015.

If you're one of the many homeowners who have been putting off a home loan health check, there's never been a better time to see if it’s worthwhile switching.

Does it make sense?

Locking in a lower interest rate is one good reason to refinance – you'll potentially make major savings on repayments for just an hour or two spent on paperwork. But there are a few other good reasons:

  1. 1. You’re nearing the end of your fixed term

    This is a great time to look at locking in a lower fixed rate, or switch to a loan that gives you more flexibility.

    Start researching rates and home loan features in the lead up to your fixed term expiring, so you’re ready to take advantage of any savings straight away.

  2. 2. Your kitchen, bathroom or bedroom needs an overhaul

    If renovations are part of your plan, you could use the equity in your home to help fund these at a lower home loan interest rate.

    Renovating can add to the value of your home, and you may be able to use your growing equity to help fund future investments.

  3. 3. You want to take control of your finances

    Refinancing can help you consolidate debts from credit cards, personal loans or renovations. There's major savings to be made here, as mortgage interest rates are much lower than the average credit card.

  4. 4. To build your wealth

    You could use the equity in your home to help with buying a second property or building a new home. If you are planning to buy an investment property, it could pay to lock in a lower rate across your property portfolio.

How much could you save?

Is it worth spending an hour with a broker or banking specialist to save $77,000? Of course it is.

Let’s say your current loan amount is $500,000 and you’re paying 5.4% in interest, and you refinance and lock in a rate of 4.7%2.

You could save over $200 in repayments each month. Over the course of a 30-year loan term, that's over $77,000 in savings – enough to put aside for that rainy day fund, your retirement or even a deposit for another property.

Other reasons to switch

As well as getting a better interest rate, a new loan may provide other benefits – including additional features like offset accounts, line of credit accounts, redraw facilities and flexible repayment options. Or, you may want to save on fees by switching to a simpler mortgage without all the bells and whistles. The home loan market is highly competitive, so look for discounted rates and special offers.

What to watch out for

Before you switch home loans, check exactly what costs or penalties you'll be up for when exiting your current loan and calculate the fees and costs associated with setting up a new loan.

If you’re one of the many homeowners who have been putting off a home loan health check, there’s never been a better time to see if it’s worthwhile switching.

For example, if you are on a fixed rate term and want to refinance before the end of the term, you will typically incur break costs. New loans typically have standard fees, such as establishment, registration and settlement fees. Weigh up both the benefits and the costs to help you determine if it’s worthwhile.

Once you've decided that refinancing is right for you, switching is relatively easy. And if you choose to refinance with Citibank, we will guide you through the process, step-by-step.

Important Information:

1. http://www.moneymanagement.com.au/news/insurance-property/surge-home-loan-refinancing

2. http://www.infochoice.com.au/calculators/refinancing-calculator/

Important Information:

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