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Refinancing Your Home Loan Can Help To Pay Child Care & School Fees.

 

refinance-your-home-loan

If you have children at pre-school or school then you’ll know the strain that Child Care & School fees can put on your budget. Consider Refinancing your loan as it could save you a lot of money.

Just suppose you could find a way that puts a few extra dollars in your pocket every month without having to work extra hours or cut back on your lifestyle, would that be of interest?

If you have a home or investment loan the good news is, it could be possible.

How?

Refinancing.

In simple terms, refinancing is a term used to describe paying off or replacing your current loan with a new loan from a new lender.

The idea being that the new lender offers you a lower interest rate and/or fees, which reduces your regular loan repayments.

At the moment (December 2016) most lenders have owner occupied home loan interests rates currently under 4% and to demonstrate the potential savings I’ll use an example of a lender who has an interest rate for an owner occupied loan of 3.79%

Lets assume that you currently have a home loan of $300,000 and your interest rate is 4.35%. Your monthly Principal & Interest repayment would be $1,493.

By refinancing to the lender offering 3.79% your monthly repayments reduce to $1,396 per month a saving of $97 per month or $1,164 per year.

How would this extra money help with your Child Care or School Fees? and think the average home loan in Sydney is much bigger than $300,000.

 

Another way to reduce your monthly repayment is to change the loan repayment type.

There are 2 basic types of loan repayment – Principal & Interest Repayments or Interest Only Repayments.

Principal & Interest repayments means that you pay the interest on the loan each month plus an extra amount that will repay your loan off over a certain time period (for example, 30 years).

A Principal & Interest repayment reduces the loan amount each month.

With Interest Only repayments all that you need to pay is the interest on the loan balance. There’s no need to pay the extra principal repayments but it also means that the loan amount stays the same.

What this means though is that the principal part of the repayment can now be used for other things, like school fees, uniforms, books, excursions etc etc.

For example, lets assume that you have a home loan of $300,000 and your interest rate is 4.35%. Your monthly Principal & Interest repayment would be $1,493.

If you changed to interest only repayments the monthly repayment would reduce to $1,088 or a saving $405 per month or a massive $4,860 per year.

 

Imagine if you did both –  reduced your interest rate and switched to interest only repayments.

Using the example above if you refinanced the $300,000 loan to the lender offering 3.79%, the monthly interest only repayment would be $948

Wow a saving of $545 per month or an incredible $6,540 per year.

 

N.B. Some lenders may not offer an interest only option on owner occupied home loans and lender qualification criteria also applies.

In order to decide whether it’s worthwhile refinancing, the savings in interest must be weighed up against any fees associated with leaving the current lender and any new fees the new lender may have.

You should get professional advice before refinancing or changing the repayment type and this is where an expert in home and investment loans can help you.

An expert in home and investment loans will provide you with all of the facts to consider your options and will give you the confidence in making your decision.

If you’d like to find out what’s possible for you please call Danny (a home and investment loan expert) anytime on 0408 648 107 or email danny@noblefinancialservices.com.au