My girlfiend and I brought a house almost 2 years ago now on 100% finance for $228,000. We have only knocked about 5 grand off that since we brought it.
We are looking to refinace now to get some extra cash and also reduce our loan repayments, so we spoke to Aussie Home Loans who were really helpful for us but this is what happened…Payout figure for our house with current bank is around $238,000
Value of our home came in at $250,000, but later that week Aussie rang us up and said that the mortgage insurance company had knocked us down to $240,000 because of my bad credit rating from 2 years ago, so now this has only left us with enough money to refinace the house only. We were going to add my g/f's car onto it as well witch was going to save us about $400 per month to but now we cant do that.
So now if we go ahead with this we are only saving $150 per month but we are another $15,000 in debt.The way I see it is if we wait another 12 months our house will be worth alot more as all the land around here should be sold by then as right now there is about 20 or so houses going up around us, our shed and pergola should be done as well witch will add value, so when the time comes to check out who has the best deal, we would of payed off more and we would have heaps more equity built up if we stay at $224,000 instead of $240,000 true?
Am I right in wanting to wait 12months or not? As at the moment my g/f and some other people are telling me im wrong and that a saving of $150 a month is good.
My g/f wants to go with RAMS because she belive that it will get out foot in the door to be able to get out the extra money we wanted for our personal debts. She belives that if we can show RAMS that we are commited to our mortgage and that we do pay our payments on time, they might be abit leanent and allow us to take out that extra money showing them that they can trust us disregarding my credit rating.
Thank you.
Welcome to the forum passnby. It doe'snt sound like the expense is worth it for you. Maybe rather than spending money on further property improvements, knuckle down and get rid of as much as that car loan as you can.
Refinancing can be a costly excercise if there is 'not much equity' in it, and if you are refinancing a $238k loan, for $240k, unless I have missed something, or you are being fleeced blind by your current lender, I can't see much point at all. (opinion of course)
As a sidepoint, perhaps try Rams first for a comparison, because they may not penailise you at all with your past credit history, and they have three mortgage insurers to choose from, compared to the two other lenders generally have – can make a b-i-g difference.
Again, it depends on who you are with , and who you switch to, but using the figures you have provided, I would suggest it will actually cost you close to the $2000 you may gain just in costs changing – even half that, at an interest rate 25 basis points less (1/4 percent – hyperthetical) will take up to four years in saving to make up what you spend to do it for a loan your size.
Naturally, it is a bit different if you can find someone to refinance at the $250k – many lenders will only actually refinance with 'cash out' to 90% now, which may be the problem rather than your credit history. (Rams will do 95%
)All the best with whatever you decide, but no need to rush from the sounds of things.
G'day Mate,
I think the best thing to do is just keep going as you are paying the house off and clearing that car debt as fast as you can,
If you do refinance to reduce your payments you will be adding years to your loan,Also beware of refinanceing the car loan into the property loan it can be a "Trap"
If you refinance the car into your home loan with out increasing your payments you will be thousands of dollars worse of in the long run even if it has reduced your monthly payment and interest rate, simply because it's better to pay your car off over 5yrs at 12% interest than to pay it of of 25years at 8%.
The only way I recomend doing it is if you refincance your car loan into you property loan to save interest but increase your monthly payments by the amount that the car loan used to be this way you will pay your car of in a shorter period and pay less interest, and once you have paid of the car your probally used to making the monthly payments so just keep the payments they same and start smashing down you home loan faster,
Never reduce your monthly payments on any thing unless there is a good reason, just to give your self more spending money is not a good reason, do the hard yards eating baked beans for a few years and the benefits will be compounded enormously over time.
I agree with Tyson, that consolidating your debt idea can be a trap.
It will decrease your overall repayments, but as Tyson said paying it off in 5 years at 12% is better than 25 years at 8%.
You and your girlfriend bought a 'house'. What do you mean by a house a PPOR(principle place of residence) where you live or an IP(investment property), from the figures given it sounds like you have a PPOR as you are not paying much off the principle of the loan.
Um, this is assuming that this property that you bought is your PPOR. OK, try moving out of your home and renting it out to tenants. Your interest will be tax deductable, and so will alot of other things aswell. Then just rent somewhere else in the meantime.
It will mean more cash spare everyweek to slam down that mortgage, and in doing so you will acquire larger equity faster.If you still have the car loan by itself and dont want to move it over to the home loan, then i consider you pay that off as fast as you can, if you are ahead in your home repayments, then throw all the money into the car loan. Once that is gone, you will have alot more cash free and your loan should fly down, this along with the renting out and renting somewhere else with tax deductions should provide quick equity which you could draw down in a few years or so for another investment property and you may hten be able to move back into your PPOR if you please.
We need more details, so we can assess your situation.
Kind Regards,
Christopher Fife.Actually that is a trap ,many fall for – usually via the 'banks' when they try and convince you to refinance the lot, and 'consolidate' but very rarely do they assist with any loan structuring advice…..the result looking good on paper at a glance, but costing heaps more long term. The way to do it to decrease your payments AND rate and save $$$ is to consolidate a car debt (or similar) into the homeloan as a split, with the new split loan term at four or five years (not 25 or 30) as the case may be, at the homeloan rate, and the rest would be the loan for the house, at 25 years or whatever term you decide. You now have Win win.THat said, in this instance, I would stand by my earlier comments that this one will appear a costly excercise at this point in time based on what has been posted.An experienced non bank lender or good finance broker will be able to assist with debt reduction as part of their service.
Hmmm, thanks guys, it has opened my eyes up alot more and I have convinced my g/f that putting the car loan onto the house isnt a great idea. What we will do is use that equity next year to build a large pergola and big shed as this will only add value to the my land, or get a IP. (ive read all of steves books and been a member here for 4 years but I still dont know enough but im learning)
As for renting it out, I wouldnt do that as I built alot of this home and im not ready for it to be misstreated in any way at all, kinda more sentimental value than money value at the moment.Anyway, we are not going through with the Rams refinance and we are not putting the car loan on our house loan anymore, thanks heaps guys for your input, its been a huge help for me and my relationship as well heh.
PS: v8ghia, what type of ghia do you own? I want to get a black XE ESP 351 and just let it sit in my shed (when its built) with raceing/sport memorabilia all around it, its a 3 car shed so it should look cool.
Hi v8ghia
Could you elaborate on this:The way to do it to decrease your payments AND rate and save $$$ is to consolidate a car debt (or similar) into the homeloan as a split, with the new split loan term at four or five years (not 25 or 30) as the case may be, at the homeloan rate,
Cheers
SGPASSNBY – Love the idea – I'm a sucker for memorabilia etc – especially old motorbikes. me and my better half (ie wife) own a BA Ghia, 5.4 ltr V8, with leather, sunroof, factory sat nav etc – lovely car and rides great with the factory sports suspension, but does not get a lot of use except bigger trips. (it's OK on juice, but juice is $$$) All the best with your ESP goal for the shed…….should be a great environment to have a glass of Cabernet in!!!!
STARGAZER. – No worries – Please excuse me if I over simplify, but just to explain clearer…..the problem the others were addressing, is just refinancing everything, inc a car and or personal loan into one big new 'mortgage' loan, all at 25 or 30 years, which of course means while you are saving interest on paper, you are paying it off over a longer term, thus costing heaps more. The way to do it would be as follows (All the figures are for example only, and for whatever reason may not suit everyone)You have a property say worth $250k, that you owe $150k on currently paying 7.95 % interest, and have had it for X amount of years, and a car loan that you took over 5 years, with three years left to go, you are paying 13% interest on with a remaining balance of $20k. . When you refinance your homeloan, whether you draw out additional equity for investing or not, you would have one new loan (say at 7.5% interest), and you would split it into Two componants – one split for the $150k you owed on your mortgage, (ie $150k, @ 7.5% interest, you would take over a 25year term) and one split for the old car loan, being a $20k loan, over a term of THREE YEARS (not the same term as your house loan) at the new lower mortgage rate of only 7.5% . So tour immediate saving is the difference between the two interest rates, in this case 5.05%. Repayments will be less too. Now, to go one step further (I know you did not ask this, but just in case someone else is reading) if you wanted extra money for investment (ie deductable ) purposes, such as to fund a property/property deposit/buy shares etc etc what you would do in the above example (assuming the home is your PPOR) is to introduce a THIRD loan split, for the remaining equity in your home up to 80%LVR, which would be around $30k in this eg, and have that as a line of credit or even another basic loan (for 7.5%) and have the funds 'sitting' in redraw ready to go, and with each of these loans, you get a seperate statement as if they are 3 seperarate loans (which they are technically) all under the umbrella of your home. Makes it easy to keep track of things, and at tax time your accountanct will love you!. Hope that clears it up a bit on how thi works. Sorry if I have droned on a bit, but it's free info, and I think it makes perfect sense for anyone interested in saving money and 'creating' it at the save time. All the best.
OOOOOOOOOk……it seems as though my g/f had it wrong from the start here, our payout figure with our bank is $225,000 witch is what we are going to refinance with RAMS, our repayments will come down by $205 a month with them, from 7.75% down to 7.40%. So now im thinking it sounds like a good deal. Had me wondering all this time because a $15K pullout fee seemed abit high for me to belive.
The bank that we are with now said that to fix our rate again with them in October it will cost us $300 and also add another $8 a fortnight onto our repayments and then another $10 a month for a management fee. So all up we will be saving about $221 per month with rams.Explain this guys beause I dont understand it…
The annual percentage rate is the Rams Standard Variable Loan (November 2005) rate less 0.77 per annum. As the disclosure date the rams Standard Variable Home Loan (November 2005) rate is 8.17% per annum. Accordingly, as at the disclosure date, the annual percentage rate is 7.40%.What does this mean?
Hi Passnby,
If I may add my two cents worth, I do mortgage and finance advice for a living. What other have contributed is pretty sensible for the most part. The maths of refinancing when you have to pay Lenders Mortgage Insurance (anything over 80% of your home value) doesn't really justify the potential short term savings. If there's a different goal, eg relieving cash flow pressures, a significant purchase etc, that needs to be weighed with the fact of the extra costs – is it worth several thousand dollars of extra debt which you have to pay off one day?
With your car loan and the wisdom of consolidating, IF the current repayments aren't uncomfortable, consolidating the debts AND the repayments means you'll pay off the car loan quicker and cheaper because you keep making the same repayments while the interest charges reduce with the lower rate. THEN when that portion of the debt is gone, KEEP making the payments that have been not uncomfortable for 3-5 years but to your remaining, and you will hose it down!
It's fantastic to assess each year, but this year it seems from what you've said cooling your heels and waiting for capital growth to take Lenders Mortgage Insurance out of the equation would be a sensible idea. Perhaps the best advice would be to ask friends for referrals to a reputable mortgage broker or two and get a second or third opinion from someone who's fully assessed your circumstances and options.
Best of luck, Dave Pellowe
Kinda is about relieving cash flow, we really want our backyard done and its about a 1/4 of the way there. Also we need to put the finishing touches on the inside of the house to.
Also, Dave take alook at my last post dude just above your one.v8ghia: I loooove BA's dude, if I had the cash I would love to have a Black XR8 Ute, at the moment I have a Hilux 4×4, pretty good ute and fun in the mud as well
OK. Make sure you get an estimate (can only be indicative in early stages) of the total costs including mortgage duty and lenders mortgage insurance so you can count the cost and weigh it up against the benefits. Emotional benefits are still important. Cash flow relief is very valid, and if you make sure you've got some flexibility, you can up your repayments when times are better without changing anything.
Any variable rate you can get less than 7.5% is good at the moment, depending on the features you're also wanting like an offset account, splits or redraw. The standard rate is what banks advertise so you can appreciate the discounts they offer, and is 8.07% at most lenders at the moment.
The benefit of a .35% discount on $225,000 is $65 / month – were you including savings on the consolidated car loan? If sensitive to cash flow, add up the current repayments on all loans being refinanced, and compare to the new loan repayments to assess the real help it may be.
Another method of conserving cash is going interest only for 5 years – sounds horrific, but doesn't mean you can't pay off the principle any time you can spare the cash. It can give you a little discretion about when to use the breathing room and when to pay off more than the interest.
Hope this helps more,
Dave.
Hi Passnby – I stand by my earlier comments (see my second paragraph in first post) about not rushing into anything, and to leave it for now based on the information you presented, but if it is going to cost you a $15k fee to refi from your current lender FORGET IT – or you'll never have that BA or the XE!!!!l Lenders charge 'breakcosts' (so called) to get out of a fixed interest loan, and you will never make that sort of money back if that is what they want out of you. Add that to any mortgage insurance and that is money just flushed…….. IF you are keen to refi, wait until your fixed rate period has finished, and rather than locking it in again, you would wait until they swap you into their 'standard variable' loan, and then look at getting out to your new lender/loan of choice then. It's hard enough to come by the stuff as it is without giving it to the bank for nothing. Just remember if and when you do consolidate, the point about the seperate split at the shorter time for your old car loan. Maybe get the guy you were talking with to set out an approximation of all the costs for the loan, inc LMI, and confirm any exit penalties from your current lender, and I think you will see there is a lot of money involved for very little gain…….another 12 months will go quick! All the best..
Opinion only of course……..Maybe an idea in here may help.
Cheers,
Without refinancing why not merely look to refinance the car loan as a secured or unsecured loan.
The costs of refinancing the unsecured debt will be substantially cheaper than that refinancing the home loan and you may end up savings 5-6% to boot.
What rate are you currently being charged and with whom ?
Richard Taylor | Australia's leading private lender
Widebay @ 8.25%
car loan as a secured or unsecured loan.<– what does that mean dude?
Kinda is about relieving cash flow, we really want our backyard done and its about a 1/4 of the way there. Also we need to put the finishing touches on the inside of the house to.
If your going to sell the house Great idea maybe …create perceived value ! But; if not mmmmm 25 year liablity is all your refinancing if you think about it.ever watch the add with the little girl telling her dad he needs to find $1:10 petrol to justify the drive ?
GeniusWhat we will do is use that equity next year to build a large pergola and big shed as this will only add value to the my land, or get a IP. (ive read all of steves books and been a member here for 4 years but I still dont know enough but im learning)
Dud doing is what doing does So hope your not procrastinating.As for renting it out, I wouldnt do that as I built alot of this home and im not ready for it to be misstreated in any way at all, kinda more sentimental value than money value at the moment.
if you love the house so much you must love the morgage too its going to be with you for the next 25<30 years so value it.
read the posts again and Steve's books you miss the Ahha's in every post here and on every page of his books
dont take offence I hope you really think and as you said learn from all thats been written here because you have been given a lot of solutions for problems that can get you nearer to paying off your debts, and closer to getting an Ip in the future.but if all you really want is to get your hands on some cash to make your house/ home more comfortable then
go for it and happy renevations ! I wish you well in home ownership.Its a brand new home, its nothing special, 24sq house on a 812sq block of land. This is why I need the cash flow,need to fill the land up! if im only going into dept another $300 or so with rams but saving about $200 per month isnt it worth it for now? or am I wrong?
You really to need to see a good mortgage broker and get personal advice. This forum is great for tips and directions, but not complete solutions. Ask all your friends if they've ever used anybody who'd they recommend you should use. It seems like you know what you want to do, and you just want it to be a good idea; so do the research, and do it the best way you can, with full knowledge of the costs and benefits before you do. Nobody here has really got the full picture, and it might take a 1-2 hour chat before you can really decide. One of my mottos is good advice is worth paying for, and it's served me well. Sit down with someone reputable, decide on a plan, and follow it through.
Best of luck, Dave
)
Dud doing is what doing does So hope your not procrastinating.
if you love the house so much you must love the morgage too its going to be with you for the next 25<30 years so value it.
in every post here and on every page of his books
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