In today’s economic climate, homeowners are looking for ways to help better manage their repayments and the rising cost of living.
Owning a home is the Great Australian Dream, and in the current climate it may seem that financial stress is almost an inevitable part of buying into that dream – but it doesn’t need to be.
Due to rising interest rates and people rolling off their fixed rates onto higher variable rates, we are now seeing some home owners’ repayments increase significantly.
Thousands of Australians took advantage of record low interest rates and bought homes at the top of the market cycle. Picture: Getty
Here are a few ways refinancing can help ease the mortgage crunch:
Refinancing could allow you to obtain a new loan with more suitable terms, such as a lower interest rate.
This is especially important for those borrowers whose financial situation might have changed in the time since they first signed with their current home loan.
For example, they may have paid down the principal amount so their loan to value ratio is improved or their property might have increased in value.
“There have been many changes in the market and the increasing interest rate environment has resulted in many households feeling the pinch. It’s critical to keep up to date with the best option on your home loan,” says Wendy Wang, NAB Mobile Home Lending Executive.
By reducing your monthly mortgage payment, you can free up cash that can be used for other essential expenses, easing your overall cost of living.
The primary goal for most people when refinancing is to either to pay off their home loan faster, or to ensure there is more money in their pocket at the end of each month.
When looking to refinance, it’s important to align your banking products and loans with your goals, and ensure not only an optimal loan structure that suits you – whether that be fixed, variable, or split – but also one that gives you a competitive rate.
Getting a better rate on your home loan has the potential to save you thousands of dollars every year, money which you could reinvest into paying off more of the principal of the loan, further reducing repayments and inevitably paying off the loan sooner.
If you’re refinancing your home loan, you could be leaving hundreds on dollars on the table: Picture: Getty
“I highly recommend that customers reach out to their bank to review their overall banking as well as their lending to ensure that their money is working for them in this environment,” says Wendy.
Additionally, improving your credit score, reducing your debt-to-income ratio, and demonstrating a consistent payment history can help you qualify for more favourable rates.
Refinancing can be an opportunity to consolidate high-interest debts, such as credit card debt or personal loans, into your home loan.
By rolling these debts into your home loan, you may be able to secure a lower interest rate and reduce your overall monthly debt payments. This can alleviate financial strain and decrease your cost of living.
However, it’s important to consider the loan term and the nature of the debts being consolidated to ensure that it is advantageous in the long run.
For instance, consolidating a short-term car loan into a 30-year home loan may result in paying for the car long after it’s gone, as well as paying more interest.
By looking at your spending behaviours and long-term objectives, you can tailor a banking strategy that maximises your financial potential.
For example, if you have excess funds, you may choose to offset your home loan, reducing the interest you pay over time.
“All debts can be consolidated when refinancing, but the banker will need to have a curious conversation with the customer to ensure that consolidating debts will benefit them,” advises Wendy.
Refinancing may allow you to modify the terms of your home loan. For example, if you currently have a variable rate home loan, you may choose to refinance into a fixed-rate home loan to provide stability and predictability in your monthly payments.
As your circumstances change, so might the need for your loan terms, like going from a variable to a fixed rate for example. Picture: Getty
Alternatively, if you’re in a better financial position, you might opt for a shorter loan term to pay off your home loan sooner and reduce the overall interest paid.
If you’ve built up equity in your home, refinancing can be a means to access that equity for various purposes, such as home improvements.
By tapping into your home’s value, you can address pressing financial needs without incurring high-interest debt from other sources.
All-in-all, refinancing your home loan offers a valuable opportunity to improve your financial well-being.
By working closely with a finance professional, exploring better loan rates, consolidating debt strategically, and creating a banking strategy using your mortgage, can help you navigate the mortgage crunch more effectively and achieve long-term financial success.
It’s never been easier or faster to refinance a home loan in a few clicks or in-person.
However, there are still several important things to consider before jumping on a new rate with a new lender.
“A home loan is not a short-term facility. It’s a product that you may have for over 25 years. When you are considering a lender, you want to look at lenders that will be there for now and in the future. You want a lender that is reputable, and adaptable,” advises Wendy.
Before you start shopping around for a new lender or refinance with your existing, you’ll want to find out what’s important to you.
Before you look into refinancing, take stock of your life circumstances and get clear on what you want from the process and what’s important to you. Picture: Getty
“Do you want to save on monthly payments? Establish an offset account? Do you want your everyday banking to be easier? All these things vary from person to person, so make sure you know what’s important to you,” says Wendy.
Once you have a better idea of what it is that you’re looking for, you’ll need to do your homework and compare lenders in the market. Some banks may offer different rates, different levels of customer service or technology and capability in their apps.
“Home Loan options really are considered on a case-by-case basis. What suits you might not necessarily suit your neighbour. Your banker should ask the right questions and work with you, as well as identify your goals and needs to determine what suits you best.”
A NAB home loan specialist can answer any questions you have and can guide you through the entire process. The NAB Appointment Booker tool makes it easy to book a time to talk to a home loan specialist, with appointments available seven days a week. Make your appointment online now at nab.com.au/book.
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The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article. Credit applications are subject to credit assessment criteria.
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