If you’ve visited a shopping centre recently, you’ll know Santa Claus is well and truly coming to town. It’s the most wonderful time of the year, but one that can quickly turn stressful, particularly when it comes to money.
By the time you add up presents, the Christmas feast and a few weeks’ break with the kids, your bank account can end up feeling less Ho Ho Ho and more no, no, no.
For me, it’s the time of year where I start to think about how our household budget has fared over the past 12 months, and work out how I can find some extra cash to fund my Christmas lights obsession.
One way to save money is through refinancing. When you refinance your home loan, you pay off your existing mortgage by taking out a new loan.
Take my friends, John and Kim. With a hefty Sydney mortgage of $750,000, they were wondering how on earth they were going to pay for Christmas.
Kim came across UNO and decided it was worth a no-obligation enquiry just to see if there were better home loan options out there.
John and Kim have always been pretty good at making sure they get the best mortgage solution for their needs. They call up their bank each year and ask for a review of their loan rates. Their bank sometimes knocks a few points off the interest rate and they walk away feeling pretty jolly.
But working with a UNO home loan adviser enabled them to access and compare the rates being offered by multiple banks and lenders – rates they might not otherwise have seen. Plus, because UNO’s advisers don’t earn commission the way traditional brokers do, they felt confident the advice they were receiving was transparent.
By refinancing their rate down by 57 basis points (i.e. switching to a lower rate) on their principal and interest loan, Kim and John have reduced their monthly repayments by $236. Plus, they have saved $70,800 over the 25-year term of their loan.*
UNO has calculated that the average Sydneysider can save $3,408 a year through refinancing. For Melburnians, it’s $2,532.** Lenders often work to targets and are super hungry to do deals and settle them before the end of the quarter (end of December).
Just as the three wise men gave gifts at Christmas time, refinancing can bring you three key benefits:
A lower interest rate, fewer fees and additional benefits such as an offset account, can all help to fill your wallet, just like your belly, come Christmas night.
You may be earning a higher income than you were when you first applied for your home loan. You can use this to your advantage and refinance to a lower term, helping you to own your home – and deck the halls – sooner.
Refinancing can help you get a line of credit based on the value of your house and the amount already paid on your home loan. You can then use the equity to renovate your home, pay off high-interest consumer debt or cover essential big-ticket purchases – like that new pool from Santa.
There is one main trap you want to avoid if you are refinancing. If you have 24 years left on your mortgage and refinance and take it back up to a 30-year loan and only pay the minimum, you’ll extend the life of the loan and could end up paying more. So consider sticking to the same loan period and taking out the new loan for a 24 year term.
Your bank may also charge fees for discharging your mortgage with them, so factor this into your calculations before you switch lenders.
Play around with the UNO refinancing calculator to see how much you can save, and have yourself a merry little Christmas.
If you are considering refinancing, take these steps:
*This calculation assumes the interest rate and monthly repayments remain the same for the life of the loan.
**This saving is based on the median Sydney house price of $995,804 and a median Melbourne house price of $740,000, at an 80% LVR, assuming an original interest rate of 4.5% and a refinanced rate of 3.89%.