Save $360 a month by refinancing your mortgage to a new 30-year term | Dollar Saver tip #59
Save: $360 a month
Tip overview: Refinance your home loan after a few years to a new 30-year term and your monthly repayments will shrink. But you will pay more interest over time, so consider making extra repayments or putting money in an offset account.
Most Australians take out a 30-year home loan. It feels like a lifelong debt, but at least you can switch to a new home loan by refinancing.
You can do this to get a lower interest rate or an offset account.
And if you've paid off some of your loan, taking out a new 30-year term will lower your monthly repayments (but there is a catch we'll explain in a second).
Did you know?
According to the ABS, the average refinancer has a $530,804 home loan.
Let's say you've got a fairly typical Australian home loan. You borrowed $600,000 over 30 years and your rate is 6.00%.
This means your monthly repayments are $3,598.
4 years into your mortgage you've paid $60,000 off the principal. This leaves you with $540,000 left.
If you refinanced the remaining $540,000 to a new 30-year home loan with the same rate, your monthly repayments would drop to $3,238 a month.
Total savings: $360 a month or $4,320 a year.
The catch? Switching to a new 30-year loan means paying more interest in the long run because you're taking longer to pay the debt off.
But you can get around this by building up extra repayments or saving money in your offset account. This way you lower your monthly repayments and use the extra cash to pay the loan off faster.
