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Home Loan Refinance to Lower Living Costs
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Every Australian is feeling the rising cost of living, and it is no surprise that many are seeking ways to save more money. In May 2024, a report by the Commonwealth Bank revealed a 1.0% drop in household spending from March to April. A very significant drop.
Additionally, over the past year, spending increased by just 2.6%, well below the current annual inflation rate of 3.6%, according to the Australian Bureau of Statistics. The most significant decline was seen in discretionary spending, which fell by 4.4% during the same period, highlighting the growing effort to cut back as costs rise.
Refinancing your home loan could help ease the burden of monthly outgoings, but there are things to consider before doing so.
Why Consider Refinancing?
Refinancing involves replacing your existing mortgage with a new one, which can offer better rates and terms. It’s a strategic option that can provide multiple benefits, depending on your financial needs.
1. Save Money with a Lower Interest Rate
Lenders often adjust their offerings to remain competitive in Australia’s home loan market. By refinancing, you might secure a lower interest rate, potentially saving you tens of thousands of dollars over the life of the loan. A lower rate could also reduce your monthly payments, improving cash flow.
2. Lower Monthly Payments by Extending the Loan Term
If you’re feeling financially stretched, refinancing to extend your loan term can reduce your monthly repayments, providing more breathing room for other expenses.
3. Consolidate Debt (put multiple loan repayments into the one monthly repayment)
Many Australians manage multiple debts, such as car loans, credit cards or personal loans. Refinancing allows you to consolidate these debts into your mortgage, often at a lower interest rate. This simplifies debt management and can reduce monthly payments. However, spreading these debts over a longer loan term could result in higher total interest costs.
4. Access Your Home Equity
If your home’s value has increased, refinancing can allow you to tap into your equity to finance renovations, invest in property, or cover major expenses, helping you make the most of your asset.
When Refinancing Might Not Be the Best Option
Refinancing isn’t always the ideal solution. There are costs involved, such as application fees and potential break fees for fixed-rate loans. It’s important to calculate whether the long-term savings will outweigh these initial expenses.
If you plan to move soon, the upfront costs of refinancing may not be recovered in the short time you remain in your home. Additionally, if your credit score has declined since you took out your original mortgage, refinancing might not result in more favourable terms.
How Broker.com.au Can Help
Deciding whether refinancing is the right choice can be complex. This is where a mortgage broker like Broker.com.au can help. We have in-depth knowledge of the market and can provide tailored advice based on your situation, guiding you through the pros and cons.
Broker.com.au will compare multiple lenders and provide options so you can choose the right loan structure that helps your unique situation. We work for the borrower.