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3 Myths About Refinancing

By Edited Jun 14, 2015 0 0

Financial matters tend to give most people a headache and an uneasy feeling. For this reason, along with misunderstood financial issues, people shy away from seeking assistance with their money such as refinancing. A study done by financial professional claimed that 46% of Australians are unhappy with their current mortgage provider and 7% are neither happy nor unhappy with their provider. That is a majority, 53%, of Australians that if shown other opportunities and given straightforward answers in regards to home loan options most likely will choose to change providers or products.

The most popular option when switching products or providers is to refinance your home loan. Refinancing is the process of replacing your current home loan with an alternate loan for various reasons; such as, consolidating debt, using the equity to free up some cash, taking advantage of lower interest rates or different loan characteristics.

To assist in easing the fears about changing your mortgage provider, here are 3 common myths circling refinancing revealed:
Too many costs that outweigh the benefits
Going through the refinancing process does tend to incur additional fees and charges that you may otherwise avoid but you must look at the savings in refinancing. If you are able to refinance a home loan with a lower interest rate you could be saving thousands in interest. Alternatively, your monthly repayments may be reduced which could allow you more cash flow each month to either pay the loan down faster or pay off other debts easier. For example, if you have a 30 year loan for $100,000 with an interest rate of 8.5% and refinance to reduce the interest rate to 7.5% you will save $25,092 in total interest and $69.70 per month. If you take that $69.70 and put it towards your loan each month you will end up saving an additional $45,000 in total interest and pay your loan out 7 years earlier. With this type of savings, choosing to absorb the initial fees and charges that typically average around $5,000, there is no doubt the benefits are stronger.

There aren't many non-bank lenders that are accessible

In actuality, non-bank lenders are more open to lending to a broader range of consumers and usually lend to those that have a not-so-perfect credit history. Bank lenders are more well-known due to the fact they dominate the market and have a large presence which makes their rates less competitive. The non-bank lenders put more effort into pleasing their consumers and tend to have lower rates to attract customers away from the major banks. Seeking a non-bank lender may be a great source for a refinance if you are unhappy with your bank's products or are having trouble securing a decent product through the bank due to your history.

You won't see the benefits for years

There are many areas that a refinance can provide immediate results such as providing cash flow for renovations or other personal use. As you refinance, you have the option to use existing equity in your home to pull out funds for immediate purposes. Additionally, as explained above, a refinance tends to decrease the monthly payment so if you are struggling to make the payments you can manage more efficiently.

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