Despite all the grumblings from the banks during the Royal commission, the fact remains that the big four banks posted almost $30 Billion in cash earnings last year. Much of this is your money, profits earned from home and investment loans in Australia.
Recently interest rates have been plummeting and one of the easiest ways the banks have to grown the $30 Billion in profits is to delay passing on the savings to you. Investment loans are an easy target for them, less politically sensitive than owner occupier loans, we’ve seen some of the banks pass through savings to owner occupier loans while passing on less or outright ignoring investment loans. In todays article we are going to suggest some tips for refinancing your investment loan, which once done, could save you thousands. Please note our advice is general advice only, speak to your financial advisor for advice tailored to your needs.
Let’s say you took out a loan 5 years ago and your current rate is 4.75%, assuming you owe $500,000 and have 25 years left on your mortgage, your current repayments would be $2,851 per month. Using the ASIC MoneySmart refinance calculator to do the numbers, if you were to refinance your loan to a cheaper lender who can offer an interest rate of 3.85%, your monthly repayment would reduce down to $2,598 per month, reducing your repayment by $253 per month and saving you $75,791 over the remainder of your loan term.
It’s obvious to see how powerful this can be, and this is on a loan balance of $500,000. Investors with larger loans, will see larger benefits from reducing their interest rate.
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Save by paying off your loan sooner
In the previous example, by switching to a new provider at a lower interest rate, you saved $253 per month in minimum repayments. If you were to do this, but decided to keep paying the loan back at the old rate, you would effectively be paying $253 EXTRA off your loan per month. Over the remainder of your loan, the extra repayments, combined with the lower interest rate, would save $118,991 over the life of the loan!
While there are heaps of benefits to refinancing your loan, you need to remember there are still costs to complete the loan application, switching fees and some government fees to change. In general, these can range from $400-600 for a single property refinance.
The good news is that there are lots of banks who offer refinance rebates at the moment. Speak to your financial advisor or mortgage broker today to see if there are savings available to you.
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