Refinancing loans

Reasons it makes sense for so many

Ten years ago, I met a most delightful woman whom I found a seniors loan for – otherwise called a reverse mortgage. She had the most adorable timber cottage that matched her bubbly personality and which she had designed herself. The cottage nestled into the vegetation and a floral trimmed timber deck and sunny sitting room overlooked a lush and fern-filled gully. She had the whole house filled with quaint souvenirs from all over the world which were a tribute to her travels, and she had no desire to ever leave her beautiful haven and the wonderful garden she had created. She wanted to take some of the equity from her home to add to her lifestyle and travels.

Recently she called me again as the ten year loan term had passed and she now needed to renew her loan. She wanted to take out additional equity and do more traveling. The value of the home had increased and she was now 10 years older so her circumstances now qualified her to take a new reverse mortgage, a better loan with a specialist seniors loan provider at a lower interest rate and with no ongoing fees, and this new loan provided her with her updated needs.

Why refinance?

Reason No. 1 for refinancing is to bring your loans into line with your current position and needs

This week I met a couple who have downsized into a peaceful, modern garden complex. Like so many, they had found it harder and harder to keep up with paying the daily expenses on the pension. They had a reverse mortgage with a major bank and high-interest credit cards with increasing balances. Refinancing their reverse mortgage with a specialist lender at a lower rate and no ongoing fees, as well as incorporating the credit card debt into the reverse mortgage, will save them several thousand dollars in interest and fees in the first year – and every year after that! They will now be free of increasing credit card repayments and have enough savings to take a holiday, or renovate, or fulfill some wish from their bucket list.   

Reason No. 2 to refinance is to consolidate debt, and make repayments easier, reduce interest and fees, and save money

It really is worth the effort of having your loans assessed by a qualified finance and mortgage broker who has access to a large spectrum of loans. Many brokers will provide this service at no charge and will be able to suggest better opportunities to save money if you refinance to a better loan.

Take the young family struggling to meet the mortgage repayments each month while paying all the mounting expenses of raising children. If they have a mortgage of $500,000 and an interest rate of 4.5%, they will pay $1,875 every month just in interest. If they refinance to 3.89% they would pay $1,620 per month in interest and save $254 every month that can be spent on other things for the family. That is a significant saving – $3,050 in one year – enough to go on a family vacation. What about an even lower rate of 3.69%? Now the saving in interest becomes $4,050. Suppose their current interest rate is higher, say 5%, then the savings from refinancing go up to $6,550. What could a family do with an extra $4,000 to $6,000 a year? Perhaps consolidate a credit card or two that simply seemed to grow instead of getting cleared, and the savings get even bigger. This should encourage every homeowner to get their home loan assessed regularly with an accredited Finance and Mortgage expert.

Reason No. 3 to refinance is to save interest

That way you can use your money for better things and more importantly to stop giving the already rich banks more of your money than you need to.

_____________________________________________________________________Sandra Dignam is a qualified Mortgage Broker and Managing Director of Every Loan, as well as a member of the Finance Brokers Association of Australia.

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