Refinancing option -am I missing something?

[shail]

I have a loan on my PPOR.

Original Loan amount was 265k
Loan term 30years

Remaining 250k
Repayment 950 fortnightly
Remaining years 20years (according to loan statement it says I will pay off my loan in 20 years)

If I refinance it with new lender
New Loan 250k
Loan term 30years
Repayment 825 fortnightly
No other charges as new lender will take care of all the charges/fees etc.


My question is,
do you think refinancing will save me more?
The reason I am asking is my loan term will be now 30 years. Even though it looks like that I am saving $125 per fortnight, I will be paying 10 years extra than my current loan.

Another question, How do I calculate principal and interest ratio for both the loans?

 

[Raddles]

Hi there
won't comment upon the refinancing as there are too many variables but to check out the principal and interest for both loans - look at the ninemsn site for the money/finance area where there are calculators that provide that sort of information.
thanks

 

[duncan_m]

The only way you'll save money is if you get a LOWER RATE or the same rate and LESS FEES.. and dont forget you'll incur discharge fees and fees for the new loan so you need to factor those in.

 

[shail]

The only way you'll save money is if you get a LOWER RATE or the same rate and LESS FEES.. and dont forget you'll incur discharge fees and fees for the new loan so you need to factor those in.

All the discharge fees and other fees are payed by the lender. they have a offer for few weeks, thats the reason I am thinking.
intrest rate on current loan is 7.74
new interest rate on new loan will be 7.62

 

[duncan_m]

All the discharge fees and other fees are payed by the lender. they have a offer for few weeks, thats the reason I am thinking.
intrest rate on current loan is 7.74
new interest rate on new loan will be 7.62

And dont forget.. if you extend the term of the loan you'll pay more interest..

So.. you need a LOWER RATE, LESS FEES and you need to pay off according to the time line of the original loan.

 

[alexlee]

Given that the difference in interest is negligible, it looks like your only difference is the fact that you're dragging the repayment of principle out by 10 years.

Generally it makes more sense to do IO with an offer for PPOR, but you need the discipline to saving into the offset. If you're not saving, remaining on the current loan may be better.
Alex

 

[JIT]

All the discharge fees and other fees are payed by the lender. they have a offer for few weeks, thats the reason I am thinking.
intrest rate on current loan is 7.74
new interest rate on new loan will be 7.62

Is the new interest rate a variable rate?

If so, it could become 7.87% in 2 days...

 

[shail]

Given that the difference in interest is negligible, it looks like your only difference is the fact that you're dragging the repayment of principle out by 10 years.

Generally it makes more sense to do IO with an offer for PPOR, but you need the discipline to saving into the offset. If you're not saving, remaining on the current loan may be better.
Alex

I think you are right. Thats what I was thinking. I will ask my lender how much will be repayment for 20 years.

 

[Qlds007]

No other charges as new lender will take care of all the charges/fees etc. - Are you sure this is correct. I think you might find your new lender will not quiet cover the mortgage registration or transfer fees or even the existing lenders discharge fee or fee for attending the settlement.

Even if they convince you they will is it worth changing for such a small amount. Why not re-negotiate the existing interest rate with your current lender and save yourself the trouble.

 

[shail]

The deal was with suncorp and they were ready to bare the transfer cost.
But I droped the idea as it was not worth chaning for few bucks. I have an appointment with my bank in coming week for the negotiating my loan.

 

[TEG]

Generally it makes more sense to do IO with an offer for PPOR, but you need the discipline to saving into the offset. If you're not saving, remaining on the current loan may be better.
Alex

I thought you should try to pay off you non tax deductible debt (home loan) as fast as possible.. i.e make repayments into your PPOR loan, and once you build equity, refinance the loan on your PPOR to buy an IP.

I have recently bought my first PPOR (PPOR loan is IO with 100% offset), but I intend to make additional funds into my PPOR loan as funds become available to reduce my PPOR debt

Alexlee, do you suggest just putting ALL my spare cash into the offset account and then use the funds in the offset to fund the deposit for my 1st IP, rather than refinance my PPOR ?

 

[alexlee]

I thought you should try to pay off you non tax deductible debt (home loan) as fast as possible.. i.e make repayments into your PPOR loan, and once you build equity, refinance the loan on your PPOR to buy an IP.

I have recently bought my first PPOR (PPOR loan is IO with 100% offset), but I intend to make additional funds into my PPOR loan as funds become available to reduce my PPOR debt

Alexlee, do you suggest just putting ALL my spare cash into the offset account and then use the funds in the offset to fund the deposit for my 1st IP, rather than refinance my PPOR ?

The advantage of PPOR with offset is greatest when you MOVE PPORs. If you use equity in the PPOR to buy IPs, for example, then you're right, you should pay money into the loan, refinance / redraw and buy the IP to maximise your deductible debt.

However, if you start off by paying money into your PPOR loan, then want to move PPORs, you can't maximise your deductible debt. If you move PPORs then you're better off using money in the offset as a deposit on the new PPOR directly.

The offset is just a neutral place to park extra cash until you decide what to do with it (i.e. buy investments or another PPOR). If moving PPORs, use the offset balance directly on the new PPOR, if buying IPs then move money from the offset into the loan first and then redraw from the loan.
Alex

 

[TEG]

Thanks alexlee. Makes sense.