Why your current lender doesn’t want you to refinance
Waiting too long to refinance can cost you some serious money. Your current lender is counting on it.
When rates are falling, it can be human nature to procrastinate and assume that good deals will always be out there.
Guess what? Your current lender is counting on your inaction.
Interest on your home loan is calculated daily. This means that at the close of each business day, your lender looks at the remaining balance on your home loan, multiplies it by your interest rate and then divides it by 365 to add more interest charges to your home loan. In short, the lender you’re with benefits every extra day you stay with them rather than finding a better deal.
It’s hard to overstate the benefit of shaving a few basis points off your home loan rate. It can save you literally tens of thousands of dollars over the life of your loan. Let’s look at a quick example.
Suppose you had a $500,000 home loan at 5.00%. Your monthly repayments would be $2,685, and over the life of a 30-year loan you’d be paying $966,278.92.
Now suppose instead that your home loan rate was just 10 basis points cheaper, at 4.90%. Your monthly repayment would now be $2,653. Sure, that $32 a month doesn’t sound like a huge saving, but when you look at it over a 30-year term, you’d be paying a total of $955,308.10. That’s $10,970.82 less. That extra $32 really adds up.
Yes, there is a bit of paperwork involved and it might take you a day, but if someone was to offer you $10,000 for a day’s work, would you turn it down? And remember, every dollar you don’t save is a dollar that is lining your lender’s pocket. This is why your current lender will never remind you to refinance when rates head south!
But hey, you’re not the only one. According to a recent UBank survey, 85% of homeowners don’t even know their current interest rate, and this enables the big lenders to make record profits year after year.
Don’t forget to check market rates every 18 months or so. In fact, set yourself a repeat reminder in your calendar. Lenders change their rates all the time for various reasons. They often offer promo rates only to quietly bump them up after a year or two, and the great deal you got two years ago may not be the best deal today.
Procrastinating on refinancing your home loan could see you miss out on some great offers. But every day you wait is another day you’re paying more than you have to. And you can bet your current lender is happy about that.
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