Refinance ebook

Refinancing your home loan

Home loans • Financial Advice • Insurance • Superannuation • Cash & Investments

Table of contents:

2

1.

Introduction by Mark Bouris

2.

Australians and Refinance

3.

Busting Mortgage Myths

4.

Taking the First Step

5.

Case Studies

Refinancing your home loan

Introduction by

Mark Bouris Interest rates have dropped to a low that no one in my generation would have thought possible.

But a recent survey conducted by the team at Yellow Brick Road shows that 40 per cent of those interviewed, who obtained a home loan more than two years ago, have never refinanced it.

It makes me angry to think people are still paying high interest despite the opportunity to pay less. In effect, you’re just handing the banks extra money. People take the time to drive to the cheaper grocery store just so they don’t pay an extra dollar for milk, so why not refinance your home loan?

If you don’t have the time, the latest knowledge or the expertise – don’t feel overwhelmed.

There are people out there to help you. I can understand how it might seem complicated or stressful, but that’s why at YBR we put the customer first, and focus on offering straightforward advice.

So, come and speak to one of our advisers, they will do the work for you. Don’t delay any further, now is the time to do your research and take your first step.

This guide will shed some light on why you should consider refinancing your home loan and start making savings now.

40%

of those interviewed, who obtained a home loan more than two years ago, have never refinanced it.

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Refinancing your home loan

You’re Not Alone

Nearly Half of Australians have Never Refinanced Yellow Brick Road reviewed the situation of 1,000 Australians who obtained a home loan more than two years ago and the results highlight how many people are missing out on substantial savings.

40 per cent of those surveyed said they had never refinanced. Another 19 per cent hadn’t refinanced in over five years, 6 per cent had refinanced four to five years ago, 8 per cent had three to four years ago and 10 per cent between two to three years.

Yellow Brick Road reviewed the situation of 1,000 Australians

40% of those surveyed said they had never refinanced.

2 years

3 years

4 years

5 years

10% 8% 6% 19% had between two to three years ago.

4

had three to four years ago.

Refinancing your home loan

had refinanced four to five years ago.

hadn’t refinanced in over five years.

1990

Reserve Bank of Australia data shows just how far the benchmark 1.5 per cent interest rate has fallen from the all-time peak of 17.5 per cent in January of 1990.

Average Loan Discount

0.2

0.9

2017

Recent analysis shows the average discount applied to new mortgages has steadily increased in recent years.

A household who took a loan out in 2010 when the average discount was around 0.2 per cent would today have access to discounts in the range of 0.9 per cent.

per cent

per cent

2010

2017

This combined with the fact that banks have not passed on the full RBA reduction means that this 2010 loan may today be on a current variable rate of around 4.8 per cent, whereas rates are now available as low as 3.68 per cent.

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Refinancing your home loan

You could save tens of thousands over the life of the loan. A study conducted in December 2016 showed that, based on principal and interest repayments for an owner occupied $450,000 loan, over a 30-year term, at 4.37 per cent you pay $2146 a month; but if you refinance to a 3.68 per cent loan you pay $2066.

That’s a difference of almost $1000 per year. There are many lenders offering competitive rates. If you do your research then you may find your savings could be significantly more.

Mark Bouris

According to the survey, the top three reasons for failing to refinance included not believing enough money would be saved in the process (31 per cent), thinking the fees and charges would outweigh the benefits (29 per cent) and perceiving the process as too much of a hassle (18 per cent).

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Refinancing your home loan

Demographic trends: • The biggest culprits of failing to refinance in the low rate environment were Queenslanders with 63 per cent saying they had either never refinanced or hadn’t for at least five years. Following Queensland (QLD) was New South Wales (NSW) at 61 per cent, Western Australia (WA) at 58 per cent, South Australia (SA) following at 57 per cent and Victoria (VIC) at 55 per cent.

• QLD and VIC both had the lowest number of residents refinancing in the past two years (14 per cent). SA was next at 18 per cent, WA at 19 per cent and NSW at 19 per cent.

• 45 per cent of young adults (25-34 year olds) with home loans said they have never refinanced (45 per cent) whereas their older counterparts were more likely to have refinanced; 35-44 year olds (41 per cent), 45-54 (41 per cent), 55-64 (36 per cent) and 65 plus (40 per cent).

• Yet more young adults had refinanced recently: 28 per cent of the 25-34 year olds refinanced in the past two years. This followed with 22 per cent of 35-44 year olds, 13 per cent of 45-54 year olds, 11 per cent of 55-64 year olds and 10 per cent of those aged 65 or older.

• 40 per cent of both males and females had never refinanced. However a slightly larger amount of females (18 per cent) than males (16 per cent) had refinanced in the past two years.

These results should act as a wake-up call for anyone who hasn’t refinanced in the past several years, to at least go out ask the question about potential savings.

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Refinancing your home loan

The cost of living is high these days. And it makes me angry that banks are profiting from money that should be in the consumers’ hands. At Yellow Brick Road, we are striving to educate Australians to empower them to find a better deal. At a time where rates are the lowest in history, everyone should be out there speaking to their lender and mortgage broker about what they can do to save.

Mark Bouris

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Refinancing your home loan

Busting the 8 Most Common Mortgage Myths and Misconceptions So why are people putting off refinancing their home loan? Let’s take a look at some of the most common myths and misconceptions.

It’s not worth refinancing a mortgage for an improvement of half a percent.

Once I find a good rate, I’m sorted for the life of my loan.

Lenders can move their variable rates at any time, so a loan that’s competitive today might not be competitive in the future. Take a look at your loan every couple of years.

A study conducted in December 2016 showed that, based on principal and interest repayments for an owner occupied $450,000 loan, over a 30-year term, at 4.37 per cent you pay $2,245 a month; but if you refinance to a 3.68 per cent loan you pay $2,066.

That saves you $179 a month, $2,151 a year and $64,537 over 30 years.

A competitive rate doesn’t really matter because the Reserve Bank controls home loan rates.

The RBA adjusts the cash rate from time to time but each lender can change their rates as they see fit.

I’m self-employed now – won’t my rate go up?

If you’re self-employed and can’t produce your tax returns, you may be offered a low documentation loan which can have higher interest rates.

If your financials and tax returns are in order, you qualify for the same rate as a regular PAYG employee.

I want to use a mortgage broker but what about the fees?

Mortgage broking fees are paid by the lender, not by you.

A mortgage broker finds you the best loan at the most competitive rate.

Banks keep secret files on my credit history.

Wrong. All lenders use a credit reporting system to check your history. Know what they know by finding out your history at www.mycreditfile.com.au.

I’m too old to refinance my mortgage.

A bank looks at your repayment ability, so they’re looking at your income and the loan term. If you’re close to retirement, you can look at shorter loan terms or alternative exit strategies.

I can’t refinance a fixed-rate loan.

You can refinance a fixed rate loan but you’ll be hit with a break cost, which is compensation for the loss the bank will incur when you leave.

Weigh up the break costs versus the potential savings and see what you come up with.

The best advice? Be informed before signing anything.

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Refinancing your home loan

Taking the First Step As we’ve seen, people often don’t take a closer look at their home loans, because the idea of refinancing seems too difficult, too confusing, or is perceived as probably not worth the effort.

Now that we’ve busted the most common myths and misconceptions around refinancing mortgages, let’s take the first step towards refinancing.

Are any of these things on your wish list?

✓

Consolidating debt

✓

Freeing up some extra cash

✓

Home renovations

✓

Paying off your mortgage sooner

Then now is the right time to think about refinancing your home loan and book yourself a consultation with one of our local, trusted advisers. Before the meeting, it’s worth asking yourself few questions to make sure you get the most out of it: What’s my rate?

What must I have?

Although most people know what their monthly payments are, they don’t actually know their interest rate. Do you?

Take a look – if it starts with a “4”, you can probably do better and we’d advise shopping around.

Have a good repayment record with your current lender and ensure you are not currently in arrears. Also, know that if you’re part-way through a fixed-rate loan you may be charged a break fee to leave. Make sure it’s worth it.

What does the market say?

What are my other costs?

The current market for variable rate mortgages runs from high three percent to over six percent. Three-year fixed rate mortgages range from the low fours to well over six per cent. There’s a lot of difference, which means there’s solid scope for savings.

A new lender will likely charge upfront fees, and there may be some costs to exit your mortgage. Also, if you have less than 20 per cent equity in your new loan, you’ll pay lenders mortgage insurance, which increases your costs.

What could I save if I refinanced?

Come in to have a chat with your local, trusted Yellow Brick Road for simple, transparent advice. Our brokers are refinancing experts who know how to streamline the process.

You could save tens of thousands over the life of the loan. A study conducted in December 2016 showed that, based on principal and interest repayments for an owner occupied $450,000 loan, over a 30-year term, at 4.37 per cent you pay $2,245 a month; but if you refinance to a 3.68 per cent loan you pay $2,066. That saves you $179 a month, $2,151 a year and $64,537 over 30 years.

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Refinancing your home loan

Who do I see?

How long will it take? What do I have to do?

Our broker will give you a run-down of the process, the application, the documents they want you to provide, and the time it typically takes.

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Refinancing your home loan

Case Studies ACT family saves $6,000 in first year after refinancing Vik Sundar, a Director at an ACT law firm, and his wife had taken out two separate loans on two properties through a major bank.

Vik had been suspicious he was paying too much for his two home loans for a while, but delayed dealing with his suspicion for fear it would prove to be too complicated.

“I had never re-financed or considered re-financing before,” Vik said. “At one point I contacted my Business Banker and requested that they review our interest rate, but was told that we had already been given the best possible rate. Given that all of our other personal and business accounts were also with the same bank, it seemed like too much hassle to move the loans.”

After becoming concerned that his bank wasn’t giving him the best deal, Vik decided to stop in to Yellow Brick Road Ainslie, to talk through his situation with one of the Wealth Managers.

“From our very first dealing with Yellow Brick Road, everything has been fantastic.

Michael and his team at Ainslie did a comprehensive analysis of our existing loans and showed us immediately the savings that we could make by refinancing.

He gave us clear options and outlined the immediate and long term benefits.

They managed the entire process and went above and beyond to drop documents off to us after hours. They kept us informed throughout the process and have continued providing advice and support even after the loan has been refinanced,” Vic said.

The family was very surprised to find out that their reduced interest alone saved them approximately $6,000 in the first year. “We were definitely surprised by how competitive the interest rate we switched to is, especially since we were told by our bank that they couldn’t offer us anything better. We intend to utilise these savings to allow us to pay off the loan much sooner,” Vik said.

“I’d advise anyone to not put it off or dismiss the process as being too complicated.

It is a relatively simple process when you have someone managing it for you.

Over the life of the loan, the savings from refinancing are significant.”

With a new baby on the way, Vik and his wife are happy to be saving more and making a dent in paying down their loans.

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Refinancing your home loan

Case Studies From Client to Cheerleader Yellow Brick Road Maroubra’s Anthony Mitry, recently helped a former basketball teammate, Andrew, save thousands on his personal finances.

Andrew was prompted to phone his old basketball buddy, Anthony, after seeing a client testimonial for Anthony on LinkedIn. Anthony sat down with Andrew and examined his current financial situation.

“By refinancing with Yellow Brick Road, Andrew could save $2,000 a month on his mortgage,” Anthony explained. A loyal bank client for many years, Andrew shook his head in disbelief.

“Last year I invited our bank relationship manager over to my place to look at my finances and help us improve our situation. One of my daughters will be starting high school this year and private school isn’t cheap. After an hour, the best he could do is recommend we stop using other bank’s ATM machines, saving us $2 here and there,” Andrew said.

“On the other hand, I’ve sat here with Anthony for five minutes and he’s saved me $2,000 a month, that’s $24,000 a year,” he said. In addition to this, a further $1,000 per month could be saved if he borrowed additional funds to pay off his car loans.

That’s a total saving of $3,000 a month.

Ecstatic with the savings, Andrew and his wife Kathryn shouted their praise from the rooftops. Not only did Andrew recommend Yellow Brick Road to his friends and colleagues, he organised back-to-back appointments for Anthony at his company’s head-office. Andrew works for a multi-award winning design and construction company with over 200 employees and a portfolio of current and completed projects exceeding $2billion.

Not satisfied with their under performing superannuation fund, Andrew and Kathryn proceeded with a complete review of their personal finances. They were not aware of Yellow Brick Road’s range of products such as Cash Manager, Smarter Money and Protected Equities Fund and were thoroughly impressed.

For his next appointment with Anthony, Andrew will be bringing his mother along.

She also requires financial planning advice.

Anthony is pleased with the savings he’s achieved for his clients. “At the end of the day, it’s about looking after your local community. Yellow Brick Road has a fantastic range of financial products and I’m very happy to have established clients for life in Andrew and Kathryn.”

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Refinancing your home loan

Home loans and other credit services are provided by Credit Representatives of Yellow Brick Road Finance Pty Limited ACN 128 708 109, Australian Credit Licence 393195. Financial Advice, Insurance, Superannuation and other financial services are provided by Authorised Representatives of Yellow Brick Road Wealth Management Pty Limited ACN 128 650 037, AFSL 323825.

To read our Financial Services Guide (FSG) and Credit Guide (CG) as required by the Australian Securities Investments Commission (ASIC) please visit our website

www.ybr.com.au