How can refinancing potentially boost your cash flow

May 11, 2020

refinancing can help boost your cash flow

2020 isn’t completely disappointing! It’s actually the prime time for refinancing and homeowners who choose to grab this opportunity could be saving a considerable amount of money.

Research by Loan comparison website Mozo, found that home owners who chose to refinance could be saving up to $100,000 over the life of their loan.

There have been many changes over the past couple of months, so it’s likely that what might’ve seemed like a competitive deal a year ago will not be the right option now.

Interest rates are at a lower spectrum and the property market has been turbulent over the past few months.

All these changes are almost a sign that it’s time to finally shop around and see if there’s a better deal out there for you.

 If you’ve been mulling over the thought of refinancing for a while, here’s a few reasons why 2020 is the year to stop procrastinating and consider jumping onto the refinancing bandwagon.

In March the Reserve Bank of Australia Governor Phillip Lowe announced he would be administering an emergency rate cut, slashing the cash rate by 0.25 basis points.

Since this announcement, almost all the big banks have passed the rate cut- with most of their interest rates plunging into the low range.

Related: RBA Makes Emergency Rate Cut in Response to Coronavirus

Mortgages have never been cheaper- and it’s unlikely that it’s going to get any better than this. If you refinance while interest rates are low, this will mean that you’ll be able to possibly make cheaper repayments.

For instance, According to Domain, this could mean that someone with a $500,000 dollar mortgage will be accumulating almost $10,000 in savings a year

As well as this, it will also accelerate the rate at that you could increase the equity in your home, due to the fact that you’ll be making lower repayments.

This is money that can go towards a home renovation or even for some much needed relief from the financial stress that you’re undoubtedly feeling during this unprecedented time.

Calculate your potential repayments here.

Related: Refinancing for a renovation

Another added bonus to refinancing during this low-interest climate is that you can reduce the potential life of your home loan.

The fact that you could be making lower mortgage repayments will mean that you’ll be saving a money, that will make it easier to pay off your home loan quicker.

For instance, consider the situation where you have a loan amounting to $600,000 that still has 30 years remaining.

You then choose to switch to a loan that has a lower interest rate and calculate that you’ll be saving $200 dollars a month based on this rate.

This money will eventually accumulate, and the savings that you make will enable to speed up the process of paying off your home loan by a few years.

By reducing a few years off the life of your loan, you can potentially get closer to your goal of being debt-free.

Remember as a rule of thumb that the longer the term of your loan is, the more you will be paying as you’ll be accruing more interest, so be sure to do what you can to reduce the life of your loan.

Related: The benefits of Refinancing your Home Loan

Property prices have been falling since the COVID-19 outbreak, and whilst this is typically a sign you shouldn’t be refinancing, it’s a sign that it might be time to reassess your situation.  

For instance, according to data collated by SQM Research, the value of a three bedroom houses has declined 0.2%  in the past month and two bedroom apartments have seen a 1.0%  decrease in Sydney.

Louis Christopher, the Managing director of SQM Research, told the Australian Financial Review that property prices could decrease by up to thirty percent if the lockdown was to remain in place for six more months.

Refinancing when your property has decreased in value is that your loan to equity ratio will have increase and you might run the risk of paying Lenders Mortgage Insurance for a second time.

However, this is even more reason to consider getting a property valuation and renegotiating the terms of your loan with your lender for a deal that’s more suitable for your circumstances.

Historically, data has shown that those who choose to shop around and refinance their loans end up winning in the long run.

The RBA recently stated that for a loan balance of $250,000- borrowers who don’t bother to shop around’ typically end up paying more than $1000 in extra payments a year.

Related:  RBA Declares Lender Loyalty Doesn’t Pay Off

It’s worthwhile to check out some of the new deals and packages that banks are offering when it comes to home loans

Don’t feel the need to stay with the lenders that you know.  While it’s tempting to just stick to a big four bank, don’t forget about neobanks and online banks.

As a customer, remember that you also always have the right to negotiate for a better deal with your current lender.

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