In short, there is no longer any great reason why you should stick with your existing lender forever. And increased competition means that, even if you are going to stay loyal, you can be benefitting from things like newer products, better interest rates and other tweaks you can make along the way.
Undoubtedly, the headline reason to refinance is to get a better rate. For just a small percentage drop, your repayments become easier and you have more money in your pocket.
Other reasons to refinance
But there are other reasons to refinance as well. Maybe you've come into some money and want the ability to pay off a big chunk of your debt. Maybe you want to consolidate your debt with your other credit card and personal loan obligations while taking advantage of better interest. Maybe you're planning to rebuild or renovate, or you want to utilise your equity to buy another property or two for investment purposes.
Consider yet another option - refinancing, but keeping your mortgage repayments exactly the same meaning you will pay off your home loan quicker.
Another option - keep your repayments the same
While many people want to refinance because it lowers their monthly obligations and gives them more money in their pocket to enhance their lifestyle, those who can afford to keep their repayments the same should seriously consider it.
Why? It's all about the equity.
If you manage to secure a better interest rate but you keep your repayments exactly the same, it will mean you are paying more off the principal each month, building equity and slashing the time it will take to repay the loan. Basically, it's your old loan - on steroids.
Want to work out how many years you can save on your loan term by making extra repayments? Take a look at our Extra Repayments Calculator.
So instead of blowing the change, consider using it to offset your loan balance, which reduces the element of interest you are paying even further. In short, any savings you can offset against the loan translates directly to a reduction in the amount payable, and also the time it will take to pay off the loan.
An offset account is also a great idea if you like to plan for rainy days. How? Because it is basically just a savings or transaction account that is simply linked to your loan account. For instance, if you manage to put $20,000 away in the offset account and you owe $300,000, it means you are only paying interest on your loan as if it was $280,000. And that's a great saving.
At the same time, by mindfully maximising the amount in the offset account, it's a great way to put savings to work while always having an available 'buffer'. As a guide to how much this 'buffer' should be, you might consider putting away at least several months’ worth of mortgage repayments, so you can cover hard times like a work layoff or if interest rates suddenly skyrocket.
Your 'buffer' can also be great news for those times when household expenses can put their foot on the throttle, like at Christmas.