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Mark Bouris appeared on A Current Affair to emphasise one of the ways Australians can work around interest rate rises and potentially save some money in the long run. It’s by refinancing.
Mark said, “Americans refinance their loans every six months. They just don’t stop. Australians are not lazy, they just get too comfortable. I think Australians could save a fortune.”
“You can’t be sitting back, complaining about interest rate rises, if you can go and save, effectively, four rate rises, just by refinancing.”
So Mark’s blunt advice is don’t sit there and complain about the rate rises, “Get off your tush and do something about it straight away.”
“There are a huge swathe of Australians who never bother to check their interest rate, they don’t know if they’re paying too much and they never actually refinance. So at the end of the day they pay way too much.”
There are fees associated with refinancing, which we’ve broken down for you here, but it will likely be worth it, as Mark explains in the following example.
Monica took out a 30 year home loan 5 years ago. She has 25 years left on her mortgage. The size of the loan remaining is $500,000 at an interest rate of 3.35%. Monica’s monthly repayments are currently $2,463.07. The key here is on Monica’s current deal, she owes $238,921 in interest repayments over the life of the loan!
If Monica were to refinance to a new lender, she could find a better deal. Say Monica applies to refinance through the Y Home Loans app, and she finds a lender who offers her a new interest rate of 2.49%, her new repayments would be:
- Loan size remaining: $500,000
- Loan term: 30 years
- Loan repayments per month: $1,973.01
Crucially, Monica’s total interest repayments now equal $210,283. That’s a saving of over $28,000!
While this refinance would provide substantial monthly savings as well as a reduction in interest payable over the duration of the loan, if Monica wanted to maximise the benefits of refinancing, she should consider making extra repayments to pay the loan off over the same remaining term, or even maintaining the same repayments on a shorter loan term.
The savings Monica makes by refinancing could go towards a family holiday (or several), or could go back into the loan.
As Mark says, “If you take the $490 that you’re saving on your monthly repayments by refinance, and you pay it off every month off your principal, in other words, if you make extra repayments, then you will reduce this 30-year loan down to 21 years and 11 months. You can go through that process there on our Y Home Loans app, by utilising our calculators.”
To see Mark’s complete analysis, click on the video above.