Interest rates in Australia are current at record low levels, with the Reserve Bank of Australia (RBA) deciding to keep rates on hold this month at 1%. As global tensions rise, particularly between the US and China, and growth forecasts are revised downwards, it looks increasingly likely that the RBA will cut rates twice further to 0.5%. To put this in perspective, the average interest rate in Australia over the last 20 years was 4.38%, with a record high of 17.5% being reached in January 1990.

With the recent rate cuts and those that are likely to come later in the year and early next, what exactly does this mean for borrowers when it comes to home loans and investment property loans. If you currently have a home loan or investment loan in place, it may be an opportune time to consider how much you could be saving by refinancing your loan. With aggressive discounting and refinance incentives offered, this could result in a significant saving for you and your family.

This week we’ll consider three real life scenarios based on people who have refinanced their loans and explore the savings that they’ve created.

1. Case Study #1: The Expat Property Investor

Natalie is an Australian expat living and working in Bangkok, Thailand. She owns two investment properties in Sydney and has two mortgages in place with a combined value of $1.4M. Her previous interest rate that she was paying was 4.4% per annum. We reviewed Natalie’s options and the various lenders that would allow her to refinance while working abroad. Based on our discussion, we decided that we wanted to keep the loan variable to benefit from any further RBA rate cuts, so ruled out any fixed rate loans that were on offer.

The Result: We managed to help Natalie to refinance her loan to a new lender at a variable interest rate of just 3.55%, creating an annual saving of approximately $8,210 or $684 per month. Natalie is now looking to utilise this saving to work towards buying her next investment property.

2. Case Study #2: The Australian Home Owner

Tom & Carol are a Australian residents living in the Perth suburbs. They bought their first home some time ago now and have been steadily working towards reducing their mortgage. After a review, we found that Tom & Carol had an outstanding mortgage balance of $800,000 and that their current interest rate was 4.93% per annum on their principal and interest loan. Unfortunately, Tom and Carol hadn’t contacted their previous lender to request a discount, so were paying a much higher rate than they needed to.

The Result: Tom & Carol decided that they would prefer to keep their interest rate variable so that they could easily make additional loan repayments when they had savings to do so, as well as fully utilising their offset account. By refinancing, we managed to bring Tom & Carol’s interest rate down to just 3.15% per year, creating an annual saving of a staggering $9,860 or $821 per month.

3. Case Study #3: The Home Owner & Investor

Steve is living and working in Melbourne, owns his own home and used some of the equity in his home previously to purchase two investment properties in Victoria. Steve came to us as he was concerned that he was paying too much interest and wanted to see if we could find him a better deal. After reviewing Steve’s loans, we found that he was paying 5.5% interest on his equity access loan, 4.5% on his investment properties and 5.12% for his home loan on his main residence. In total, Steve had total outstanding debt of approximately $2.4M that he was paying an average interest rate of 4.9% on. Ideally, Steve wanted to reduce the interest rates on each of his individual loans.

The Result: After reviewing the options for Steve with the various lenders, we found that we could refinance his equity access loan combining it with one of his investment loans as the property had increased in value, as well as refinance his second investment property loan, which brought the interest rate on Steve’s investment loans down to 3.39%. We then managed to refinance his home loan reducing the rate to just 2.99%. The average interest rate Steve was now paying was just 3.15%, which created an annual saving of $29,054 or $2,421 per month.

As you can see, by reviewing your options, you could be creating some significant savings in your finances.  

Ally Home Loans Pty Ltd is your ally in finance for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.

Book an obligation-free, complimentary consultation here today.

Ally Home Loans Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.