1.. To save money
By far and away the biggest reason people chose to refinance their home loan is ‘To save money’. Lowering your mortgage payment can also save you hundreds of dollars per month that could be used to pay your home loan off faster, pay for the kids education, update your car.
What would you spend the extra savings on?
2.. To access funds for various personal or financial goals
Other uses for a lump sum in cash are literally endless – you could use your equity to buy your family that long overdue overseas holiday you’ve always wanted or even use it to invest in a business or shares
3.. To release equity for property investment
Property investment is currently one of the most popular ways of building wealth for your future. Whilst saving the deposit to purchase a second property may be difficult for many, rapid rises in property values over the least few years has provided an opportunity for many to refinance and release equity in their home to use as a deposit instead.
4.. To renovate or extend your home
Renovating or extending your current home to meet the needs of your growing family or changing lifestyle is often a better option than purchasing an entirely new home. By renovating or extending, you will be able to create the home that exactly meets your needs and if you’re careful about the improvements you make, perhaps even increase its value at the same time. Even though you will need to access your equity, you may in the end also improve the value of your home to offset this cost.
5.. To consolidate debts
Your home loan interest rate is probably the lowest form of interest you will need to pay on any loan in Australia. Credit card interest rates can be as much as four times higher than your home loan interest rate and this can make credit card debts difficult to pay off. Other expensive debts like car loans or personal loans can also prove to be a drain on your finances.
Click here and let’s see what is possible
Use your equity…
This one is a little left of centre, considering in previous posts I have been showing you ways to reduce debt. Now, I am going to suggest borrowing more, ultimately to reduce debt. When I first entered the world of finance broking, I would hear stories about people paying off their loan in 10 years. I always thought that only the wealthy could do this; there was no way I could manage to double my repayments to make this happen. Again with our $400,000 loan, at 6%, I would need to pay $2,050 extra per month, on top off the already $2,398. Whoa, a bit of an ask? However, to achieve this aim, you could purchase a well selected investment property. I must stress that this really relies on choosing the right property to achieve capital growth, a property that will double in value every 10 years. This strategy may not be suitable for everyone.
Case Study
scenario
• Current home value $500,000.
• Current mortgage $300,000.
• Current loan repayments $1,610 per month.
• Interest rate 5% per annum.
• Time remaining with mortgage 30 years.
• Total repayments over 30 years $579,438.
Position Year 1.
For ease of illustration I have not included costs such as stamp duty etc. As a rule of thumb in Victoria one should add 5.5% to the purchase price to ascertain associated costs for an investment property.
Position Year 10.
Sell investment property for $800,000 and repay both investment loan and home loan leaving no debt on your current home loan.
End Position
Investment property sold for $800,000. Investment loan of $300,000, paid out. Investment loan of $100,000 attached to own home paid out. Home loan of $300,000 paid out. Own home worth $1,000,000 with no debt. Cash in bank $100,000, time to invest again.
Disclaimer and notes.
Does not take into account principle and interest repayments on existing home loan, balance after 10 years = $244,000. Selling costs and capital gains not taken into consideration for this example. The information provided is of a general nature and we would encourage you to discuss your personal circumstance with your broker or financial planner and or accountant. You should seek professional advice before you implement any new approach to ensure that it is appropriate for your circumstance.
Past results do not guarantee future performance
Ten questions to ask a mortgage broker Using a mortgage broker to help you choose a home loan can save you considerable time and could result in huge savings. However, before you decide on a broker, you need to make sure they’re going to meet your needs. Here are some questions to ask. 1. How […]
Did you know that $1,000 extra on your Credit Card limit can reduce your borrowing capacity by up to $5,500 with some lenders? This can mean the difference between owning a property and not.
Let’s assume our client, Ian, earns 80Kpa. and has a credit card of 10K, no other debts and is single…Now, let’s see how much we can borrow with this 10K card limit and for the exercise we’ll pick Homeloans Ltd as the preferred lender…
10K = 520,074
9K = 524,429
8K = 528,783
7K = 533,137
6K = 537,492
5K = 541,846
This shows that for every $1K of extra credit card limit, your borrowing capacity in this instance reduces by approx. $4350.
TIP: When your bank sends you an invite to increase your credit card limit have a bit of a think before blindly accepting their offer. With this example, bigger was to better.
