Whilst Keystart is a great way for many borrowers to get on the housing ladder using a very low deposit. The benefit of this and not having to pay lenders mortgage insurance entices many first home buyers. The downside is with the recent rate increases Keystart’s variable home loan rate has increased to 7.6% and this could be putting a train on cash flow.
Most Keystart borrowers take out 98% LVR (Loan to Value) home loans and the major stumbling block to getting a better deal is the current value of your property. Property prices in WA have been on the climb over the last couple of years meaning that many borrowers can refinance sooner than anticipated. Most lenders will carry out a free valuation prior to completing a refinance application, so you have an idea of what’s possible .
There’s many compelling reasons to make the switch.
- Lower Monthly Payments: One of the most immediate benefits of refinancing to a lower variable rate is the potential for lower monthly mortgage payments. A reduced interest rate means a smaller chunk of your income goes towards servicing your home loan, leaving you with more money in your pocket each month.
- Save on Interest Over Time: Lower interest rates translate into significant long-term savings. Over the life of your loan, even a seemingly small reduction in interest can add up to thousands of dollars saved. This extra money can be invested or used for other financial goals, providing you with greater financial flexibility.
- Boost Your Financial Health: Lowering your mortgage rate can improve your overall financial well-being. You’ll have more disposable income to pay off other debts, save for retirement, or build an emergency fund. Reducing financial stress is a powerful motivator for refinancing.
- Access to Equity: Refinancing can also allow you to tap into the equity you’ve built up in your home. By securing a lower interest rate, you can potentially borrow against your home’s value at a lower cost, which can be used for home improvements, investments, or other financial needs.
- Flexibility and Improved Terms: When you refinance, you have the opportunity to negotiate better loan terms. You can choose a loan with features that better suit your current financial situation, such as flexible repayment options, lower fees, or the ability to make extra repayments without penalties.
- Stability in an Uncertain Market: Variable rates can fluctuate with market conditions, and while they tend to be lower than fixed rates initially, they may rise unexpectedly. By refinancing to a lower variable rate, you can secure a more stable and predictable payment schedule, protecting yourself from future interest rate hikes.
- Access to New Lenders: Refinancing also gives you the chance to explore other lenders in the market. You might find a lender with better customer service, improved digital tools, or more favorable loan terms, enhancing your overall borrowing experience.
We’ve calculated a couple of examples of what you could expect to save, but you also need to factor in that there are costs to refinance. The examples below are for general information only.
Example 1 Refinance of Keystart loan of *$430,000 remaining with a term of 28 years left, value of property $540,000.
Refinance loan amount $431,062 (inc fees), variable rate 5.95% (5.97% comparison rate)
With this example the loan would be less than 80% LVR, so there would be no lenders mortgage insurance.
Savings are shown over the next 2 years:
- Save $454 per month on minimum payment
- Save $11,916 over 2 years!
Costs to switch are estimated to be $1,062 (includes discharge fee, mortgage registration fees and new lender application fee).
What if I don’t have enough equity? Example 2 Refinance of Keystart loan of *$430,000 remaining with a term of 28 years left, value of property $500,000.
With this loan, the LVR is greater than 80%, this will mean lenders mortgage insurance would be charged. Loans above 80% may also incur a slightly higher rate. Whilst there are monthly savings, the loan amount does increase, but over a 2 year period there are savings.
Refinance loan amount $436,479 (inc fees), variable rate 6.19% (6.21% comparison rate)
With this example the loan would be 86% LVR, so there would be $5,417 lenders mortgage insurance.
Savings are shown over the next 2 years:
- Save $357 per month on minimum payment
- Save $3,826 over 2 years
Costs to switch are estimated to be $1,062 (includes discharge fee, mortgage registration fees and new lender application fee).
In conclusion, refinancing your Keystart home loan to a lower variable rate offers a multitude of financial advantages, from immediate monthly savings to long-term financial security and flexibility. Before making the decision, it’s essential to carefully evaluate your current loan terms, compare offers from different lenders, and calculate potential savings. Ultimately, refinancing can be a smart strategy to boost your financial well-being and make the most of your homeownership journey.
Need some help? Get in touch with the team to book an appointment.
* Loan examples are for illustration only. The information above is general, any offer of credit is subject to a review of your full financial situation.