How refinancing makes money simpler
It’s hard not to feel overwhelmed by multiple streams of debt in your life, but refinancing could be a quick way for you to minimise them into one simple recurring payment that’s easier to focus on.
Financial minimalism: it’s about giving yourself breathing room so you can focus on more important things in life.
Firstly, a quick primer for those new to the field: Refinancing (replacing your current mortgage rate with a new one) can be done with the same bank or with a competitor and can be done virtually any time (for home loans, usually at least 12 months in). Savvy Australians refinance for any number of reasons, but these usually come down to wanting a lower or fixed interest rate, to pay off a loan faster, to consolidate debts, for a quick cash injection, or any combination of the above. We wrote more about the savings you can make from refinancing here.
It’s also not all that hard to do, if you break it down into these simple steps:
Step 1: Know your current situation
Knowing when to refinance means knowing your current home loan rate – something 82% of Australian’s currently don’t*.
- Your current interest rate and repayments
- If you’re paying any monthly fees
- If your loan type (fixed or variable) works for you
- If your repayment type (principal and interest or interest only) meets your requirements
- If there’s any other features that are important to you
- Whether your current lender will charge you for leaving them
- Other debts you wanted to consolidate** into the refinanced loan
**Consolidating doesn’t ‘remove’ those debts from your life; they’re simply transferred from the original loan provider as an addition to your new home loan so you only pay one debt repayment each month. Of course, there is no one-size-fits-all solution here, but you could find it much easier to manage your finances with only one monthly repayment to concentrate on.
Step 2: Choose your rate
Most banks have a calculator to compare your current home loan rate against theirs. Give ours a go, and if the numbers are looking positive, you can also calculate your borrowing power, loan repayments and upfront costs. From here, you can choose your type of rate (Owner Occupier, Investor or Fixed) which is where your research from step 1 will really come in to play. Keep it handy.
Pro tip: If you’re consolidating your other debts (like a car loan or credit card) don’t forget to include these in your calculations.
Step 3: Let the bank take it from there
You’ve decided to refinance, found a better rate and you’re ready to take the leap. Firstly, you’ll need to sign some documents and have your property valued. Once the legal papers are signed, sealed and delivered, your bank will arrange a settlement with your current loan provider, acquire the loan off them, and kick off the repayment process just like normal (with a little less stress). Throughout all of this, your new lender will be able to guide you through the process and answer questions that may come up.
Pro tip: This is where the champagne comes in.
And that’s it! Like we said, people refinance for any number of reasons – they may have found a better rate, they might want to do that dream renovation, or they may just want to go on holiday. It’s a perfectly common way to consolidate your expenses into one, giving you the breathing space to get more out of your everyday, with the people that matter most.
* UBank Know Your Numbers Index data conducted and compiled by Galaxy Research of 1,015 Australians in February 2018.