Quick question: off the top of your head, do you know what your current home loan interest rate is?
No? Don’t worry, you’re not alone. Recent research by UBank shows 85% of Australians don’t know what interest rate they’re currently paying.
You can save tens of thousands of dollars by refinancing your loan with a different lender. Picture: Getty
And that means you could be missing out on tens of thousands of dollars in savings that you could achieve over the life of a loan, by simply refinancing your loan with a different lender and a cheaper rate.
Here are four tips and things you should know about refinancing your home loan:
Crunch the numbers
Arguably, the biggest reasons why people stick with the same home loan forever are apathy, or not realising they can switch to another loan, or both.
So do a little research and check with other lenders, and you’d be amazed at how much you could save by switching loans and shaving just a few percentage points off your interest rate.
For example, if you have a $360,000 loan with a 4.24% variable interest rate, by switching to UBank’s low variable home loan rate of 3.74%, you’d save more than $37,000 over the 30-year life of the loan.
Yes, it will take a little effort on your behalf, but if someone offered you $37,000 for a couple of hours work, you’d take it, wouldn’t you?
Switching lenders is often well worth the effort. Picture: Getty
Look beyond the headline rates
Headline rates are the attractive home loan rates that lenders use in their promotional material and advertisements to lure you in the door.
But are they always the best home loan rate for you? Often these rates will be for an introductory period only, and will then revert to a much higher rate after the first year or two. They might also have ongoing fees and charges that significantly add to the cost of the loan over its lifetime.
A handy tip is to compare the lender’s headline rate and comparison rate. The closer they are to each other, the less likely it is that a borrower will face a rate increase due to the expiry of the introductory rate, as well as being hit with any hidden fees.
Some lenders, such as UBank, don’t alter their introductory rate at all throughout the life of the loan, so it pays to drill down into the fine print and explore all of your options before you sign on the dotted line.
If you do find yourself stuck with a rate that’s well above the one you thought you’d signed up for, it could be a great time to investigate refinancing.
Have your documents in order
Just like when you applied for your initial home loan, it’s important that you’ve got all the necessary paperwork, documentation and information on hand if you want to refinance your home loan.
Particularly if you’re switching lenders, applying for the new loan will likely require all the same information that you provided when locking in your initial loan. So if you want to act quickly, it pays to keep all your documents handy, and keep your list of assets and liabilities updated.
If you want to act quickly, it pays to keep all your documents handy and updated. Picture: Getty
Double down on savings
The beauty of refinancing your home loan with a cheaper rate is that the money you save can then be put straight back into extra home loan repayments, saving you even more money in the long term.
For example, on that $360,000 loan, if you were to put the $103 you save each month, by switching to a cheaper rate, into an extra monthly payment off your home loan, you’d save more than $27,000 in interest over the life of your loan, and have it paid off three years earlier.
