There’s only a few weeks left until Christmas and most Australians will already be feeling the financial pinch. If you’re kicking yourself for not starting to save your income for this holiday season earlier, why not get a head start on next year now?
If you’re the kind of person who has trouble saving, avoid complicated budgets and the guilt and stress that comes from unexpected expenses by following this one simple savings tip today.
Refinance your home loan and save thousands
Refinancing, or ‘remortgaging’ refers to the process of switching home loans to a more competitive lender. There are many reasons why home owners may refinance, including to help save money, increase loan flexibility, pay off their loan quicker and to free up some equity.
By refinancing your home loan to a lower interest rate, you could save thousands by next Christmas.
How? Say a borrower had a $500,000 home loan with an interest rate of 4.34 per cent over 30 years. If they refinanced to one of the 531 owner-occupier home loans under 4 per cent, like the HSBC Home Value Loan at 3.65 per cent, they would save $199 a month.
This would mean by next Christmas they would have an extra $2,388 to spend.
It’s simpler than you think…
What is a little paper work in the face of thousands of dollars in savings? The process of refinancing your mortgage will depend on the lender you choose and your current lender, but overall, it’s a fairly simple process.
- Define your refinance goal
Do you want to reduce your monthly repayment, pay your loan quicker, get cash out of the property, consolidate debt? You can score more than just mega Christmas savings by refinancing your home loan.
- Choose the most competitive new home loan
Using a home loan comparison tool, look for a new home loan that has an interest rate under 4 per cent, or is lower than your current rate. You can also look for a new loan product with flexible features such as redraw facilities and the ability to make extra repayments.
- Apply online or in a branch
Most lenders make the refinancing process even easier by allowing you to apply online. Ensure you have all your relevant paperwork (personal identification such as passports, licenses, bank statements etc.) ready as your new lender will require this.
So, what’s the catch?
If the thought of those Christmas saving outweighs your hatred of paperwork, it is important to be aware that the refinancing process can involve some fees from your current lender and your new lender for switching.
- Discharge fee: $100-$400
- Break fee (for fixed loans): Varies depending on how much variable rates have moved
- Set up fees: $300-$1000
While this list of fees may seem like a hindrance instead of a savings method, you should keep in mind that many lenders will negotiate on set up fees and may also cover your discharge fees to earn your business.
For example, the HSBC Home Value Loan has zero upfront or ongoing fees, and allows for extra repayments and redraw services.
Also, keep in mind that the cost of switching will be made up by your potential savings very quickly.
Borrowing money to cover your Christmas spend, or putting your silly season bill on the credit card will cost you through interest in the long run. Instead, gift yourself with a Christmas bonus for next year’s holiday season by refinancing your home loan to a more competitive rate.