Lately, advisers have been forthright in advocating the virtues of refinancing existing lending arrangements with another lender.  Before we discuss the issues relevant to that decision lets examine the Mortgage Broking industry for a better understanding of the advice provided. 

The stellar rise of the Mortgage Broking industry over the last 5 to 10 years has primarily been driven by consumers and banks realising that people want to talk to an adviser who can offer a choice of loans, from a variety of lenders, rather than one representing only their employer’s products.  This coupled with the added competition in the lending market and the property boom giving borrowers more equity to tap into, saw the demand for Mortgage Brokers services peak in 2003 and 2004.  Now that the property market has slowed down and the novelty of loan brokers has worn off, many Mortgage Brokers are finding it harder to source new clients and are talking up refinancing or combining car and personal debt into home loans to clients.

Quite often if the client’s existing lending facilities are not competitive due to high interest rates or not providing features to assist in minimising interest, there is a very justified reason to refinance to a better package.  The major negative issue to consider is that any refinance will incur costs by way of application fees, stamp duties and valuations.  On the positive side the new package may offer significant savings in interest and fees the ability to setup offset or redraw facilities to accelerate repayment of loans and possibly wealth creation or tax minimisation opportunities by accessing equity for investment.  A careful review of the costs of the refinance with the benefits of the new structure and facility is required to ensure the overall effect is beneficial within an acceptable time frame.  

Human nature means that focus on immediate benefits, such as lowering monthly payments to free up more spending money or being able to purchase the new boat or car, is very attractive. Common sense says the long term benefits in respect to the major financial goals of reducing non deductible debt and building passive assets should be given more consideration.

Speak with Peter to ensure any refinance opportunities are fully assessed from both a lifestyle and financial perspective.