The average Australian is literally throwing away $58,000 by not refinancing their home loan
By sticking with higher interest rates Australians are throwing piles of cash down the drain.
When did you last check the interest rate on your home loan? Go on, look at your latest bank statement. It's probably higher than you think. We're not exaggerating: switching home loans is easy and by failing to do so you're literally throwing up to $58,000 away.
Really? That much?
Yep. Let's say you've borrowed $400,100 (that's the Australian average, but you may have borrowed a lot more). Now say your interest rate has crept up to 4.30% (don't laugh, check your bank statement!).
If you've taken out a standard, 30-year mortgage with principal and interest repayments at that rate, you'd be paying $1,979.98 a month in repayments. By the end of the loan that's $712,793.03.
Enormous. But what if you switched to a competitive mortgage with a 3.59% interest rate? You'd be paying $1,816.79 a month. That's $654,043.88 for the life of the loan.
That's a saving of $58,749 dollars (and 15 cents).
What does $58,000 really look like?
Human brains aren't great at processing large numbers, so let's break down what your refinance savings look like.
- 36 weeks of full-time work. The average full-time Australian salary is $82,482 a year, according to the ABS. By not refinancing you're wasting more than 8 months of full-time work. Switch your loan (and ask for a pay rise while you're at it).
- Over 3 years of groceries (alcohol included). According to MoneySmart.gov.au, a young Aussie family of four spends $336 a week on food and drink. Get your mortgage sorted and start buying the expensive toilet paper.
- Enough to buy this house. Seriously. Drop $58,000 down and you could buy this 3 bedroom bargain in Meandarra, Queensland without borrowing a dollar more. And it's on a large corner block.
- 58 return flights from Sydney to Los Angeles. Your mileage may vary, but Air New Zealand is offering return flights from Sydney to LA right now for around $1,000 per person. That is 2,320 hours in the air, though.
- 91 metres. Divide $58,000 into $100 notes. That's 580 $100 notes, each with a length of 158 millimetres. If you laid them out neatly end to end, you'd have 91 metres of straight cash.
- A year's tuition and board at the King's School, Parramatta. You'd be around $1,000 short for a Year 11 or 12 student, though, and your kid might get better results at the local public school anyway.
- A 2018 BMW X2. Ah, now that's a shiny all-wheel drive motivation to refinance.
OK, I get it! But how do I refinance my home loan?
Switching is really quite easy. You need to compare home loans and find one with a lower interest rate and the features and repayment type you need.
Then you apply for approval just like any other mortgage. You'll need identification (driver's licence, passport) and financial documents (bank statements, pay slips) and your lender will value your property again.
Once approved, there's nothing else you need to do. Your new lender will talk to your old lender and handle the actual switching for you. It's a few hours of work to save up to $58,000. It could be the fastest money you've ever made.