Save now or save loads more later

There are two main options – really opportunities – when you refinance.

You can choose to pocket an average $291 a month today. Yes, it’s appealing.

Or you could instead choose to stay on the exact same repayment and get out of debt maybe seven years early and tens of thousands of dollars more cheaply.

It’s a win-win situation but there are important factors you need to weigh in your ‘more money now’ or ‘more money later’ decision.

And, for starters, you need to know the numbers.

The ‘more money now’ strategy

Let’s assume you have a $500,000, 25-year home loan.

Let’s also assume you are on an old, uncompetitive product so pay an eye-watering but not uncommon interest rate of 5.5 percent.

Your minimum monthly repayments are $3,071.

But rather than just wearing this, you get home-loan savvy.

You ditch the expensive product and switch to one charging 4.5 percent… and your repayments fall – overnight – to $2,780.

Yes, you instantly pocket an extra $291 each and every month.

But you know what, adopt some longer term thinking and you could do even better than that…

The ‘more money later’ strategy

Let me say straightaway that this one does not give you an ‘in-your-pocket’ bottom-line boost. But it will be well worth it!

Let me explain.

Here, instead of sticking to the $291, you simply move your mortgage to the better deal but do not ‘move’ the amount of your repayments—you keep them exactly the same.

I call this mortgage-busting masterstroke the ‘up stumps but still stump up’ strategy.

By cutting your mandatory repayments but keeping paying what you already do each month, so what you are already used to, your savings from a refinance go stratospheric.

Over the lifetime of the loan, you slash your interest bill by $147,273. Your savings if you instead pocket the cash mount to only $87,383.

But perhaps not even that is compelling enough for you. Until you also realise this…

When you ‘up stumps but still stump up’, not only do you save some $60,000 extra but you also shave just over four years off your loan term.

At that point – early – your repayments become entirely yours to spend as you will.

And your home is your own.

What’s it going to be?

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Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me and an independent money educator across Australia’s newspapers and websites, and radio and television programs.

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The views and opinions expressed in this article are those of the author and do not necessarily reflect the policy or views of Unloan. The article is provided for general information and have been prepared and provided without considering any person’s financial situation, needs or objectives. You should consider their appropriateness to your own situation before making any decisions.

This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.