She's On The Money - A beginners guide to refinancing your home loan

Episode Date: February 8, 2022

To refinance or not, that is the question. Is a super low-interest rate the most important thing to consider when potentially refinancing your mortgage? spoiler: it's not. Join V and G to talk all things mortgages and finance, whether you're in the market or not, this ep will have you spitting finance facts everywhere - and is valuable even if you've got a home loan.The advice shared on She’s on The Money is general in nature and does not consider your individual circumstances. She’s on The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. Victoria Devine is an Authorised Representative of Infocus Securities Australia Proprietary Limited ABN 47 097 797 049 AFSL - AFSL 236523.See omnystudio.com/listener for privacy information.

She's on the money. She's on the money. Hello and welcome to She's on the money, the podcast for millennials who want financial freedom. Mortgage refinancing. How do we do it? How can it help us financially? And what are the costly mistakes homeowners continue to make in this space? My name is Georgia King and joining me to reveal all is of course, financial advisor, Victoria Devine. Vee, for any unknowing non-home owners like my good self, what are we actually referring to when we talk about refinancing our mortgage. It sounds fancy, doesn't it? But essentially, simply put, refinancing is when

you transfer your home loan from one bank or lender to a different bank or lender. You could even go from current lender to current lender, but you're changing your banking product and refinancing the loan. That said, the reason you refinance is usually to try and get a lower interest rate or a better deal or like a sign up bonus or some benefit to actually, you know, putting your loan with another bank or with another banking product, or you could even be refinancing and decide not to refinance completely. You just call up Hustle, your current bank, and they give you a better deal because you've threatened the process. Okay. So, it's like it's restructuring the loan that we have, be that with our current lender or

with a new lender to score ourselves a better deal. Yes, sir. That is exactly what that means. We've nailed it. All right. Wrap the up there. End of podcast. See you guys later. Okay. So, saving money is what we're here for. That's why we refinance. Always. How does it technically save us cash though? There are a heap of ways it can save you cash. So, first things first, it could, and this one comes with a massive caveat and I'll explain after I tell you what the point is, George. But number one is it reduces your repayments. So, that's a money win because

obviously the less interest you're paying, the more money saved. But we also need to be really careful because your repayments might decrease over time. But massive caveat, just because your repayments decrease. So, George, say your mortgage repayment's $1,000 a month and you go refinance your loan. You're like, money win. It's now $800 a month. We need to be really careful about how long that term is for. And maybe we're saving money in the short term because our monthly repayments are lower, but our long term over the term of the loan is longer. So, we need to just be careful. And I know you're going to ask me later what the downfall is, but I feel like I need to say it at the same time. Is that too cheeky? No, it's good. It's good. Let's really

drive it home. Sorry, sorry, sorry. The next is you could pay your home loan off sooner. That's a good idea. Everybody wants that. So, not needing to pay extra for additional interest means that you can actually funnel more cash towards your loan and pay off your property sooner. And that kind of links to number one, where you're reducing your payments. maybe you reduce your payments and what your minimum spend is so it goes from a thousand dollars a month down to eight hundred dollars a month but you continue at a thousand dollars a month and you get out of your home loan faster we love that we do another reason why people might refinance and i've seen a fair bit of this recently is actually debt consolidation so you might have

a home loan as well as like a car loan and maybe a small personal loan especially having gone through COVID. I feel like that's a really common thing to have, you know, experienced in the last few years. And as we've spoken about before, making multiple repayments at multiple different interest rates might not always be in your best interests. So, you might refinance to kind of drag that car loan and that personal loan into your home loan. So, you have one repayment and one debt as opposed to a few with different interest rates and you would have a lower interest rate across the board. There are obviously, again, lots of caveats to that and you can't always do it. So definitely comb through, see if that's an option for you. But that's a reason why people might

want to refinance. And J. King, this is the sexiest of options. Aren't you ready? You didn't sound as ready as I wanted to. Jeez Louise. Lay it on me, girl. Oh, thanks, George. That wasn't scripted at all. No, we don't script. Is it obvious? But that sexy option, and I think it is sexy, is accessing equity. So equity is the money that is locked into our home loan that we can potentially access to either invest or renovate our properties or buy more properties. And that is the sexy thing when it comes to a mortgage, right? Like we want

to have a mortgage that essentially is lower than what the property is valued at so that we can either access equity or just have equity because it is nice. So, instead of needing a cash deposit on your future investment property, you could actually just use home equity, which can help you increase your net worth, which, gee, sounds sexy. We do have to be careful with it. Again, there's lots of caveats, but that was the sexiest of options and I left it to the last for you. Stunning. Okay. So, that's how it saves us cash. I'm going to sound like an absolute sausage here. A tweet. A tweet. I love that word. Can you tell me a little bit more about equity? Because this is, I am kind of new to this idea. How many properties can you buy with one property?

What is this? Well, equity is one of those things that I think feels elusive, but once you own property, it's something that, you know, after a certain period of time you might have, especially in this property market where it's gone up so significantly. Like Georgia, if you'd purchased a property on the Mornington Peninsula, which is very local to George and I. George, you live on the Mornington Peninsula. I am from the Mornington Peninsula, so we know it really well. But if you purchased it 12 months ago, your property might have increased by 30%. Like that is pretty crazy to think that property prices would increase. But the value there is that has given a lot of people who purchased 12 months ago a whole heap of equity in their properties because their properties are

worth more than what the loans they have on them are. So that's kind of sexy. So whether you're looking to invest in property or renovate, or maybe even pay off some debt or pay for something big, or maybe you want to borrow against the equity in your home to buy another investment property. Equity is something that from my perspective is a super valuable resource, but it's one of those things that I think we need to understand because it's not a given. Like just because you have a home loan doesn't mean you automatically have equity. so home equity refers to the current market value of your home which won't necessarily be the price that you purchased it for minus the amount of money that you still own on your home loan so

to give you a quick example because stats gal but this isn't a stat say your house on the morning to peninsula is worth eight hundred thousand dollars and you've paid off so much george because she's on the money pays you so well and you owe three hundred thousand dollars on that property. That's all you've got left to pay off. You're going to have, or you'll be in a position of having $500,000 worth of equity in that property. So, you need to obviously keep in mind things like market value. Obviously, that can go up and down. So, the equity you have might rise and fall because if the property market goes down and that property ends up being valued $300,000, you don't have any equity. Does that make sense? Yeah, it does. So, equity is something that,

you know, you could guesstimate what it is. You might go, oh, look, the house down the street, that's all for 800 grand, but we paid 500 and only, oh, you know, 300 left. Then you're guesstimating what your equity is. So, to find out how much equity you have in your property, it's a good idea to just have a chat to a mortgage broker who can find you someone who can actually value the property properly, if that makes sense. Like, you can't just Google it and be like, oh, well, Google said that this is what it's worth. Like, that's not helpful or constructive. because it might be different. So, with that in mind, I think it's really important for us to understand what equity is and whether it's usable or not. But the thing with equity is you could

pull some of that out. Like you can't just go, oh, right, Victoria, I've got $500,000 of equity. I'm going to rip that out and use it. But you definitely could go to a bank and be like, hey, Mr. Bankman, I would like to purchase an investment property. And they'll go, gee, have you got a deposit? And you go, no, sir, I have equity. And they go, oh, nice. How much have you got? And you'll say, oh, about $500,000 worth of equity. And they'll do all of their calculations. And in lieu of a deposit, you might be able to use that equity in your property instead of having to save up again for a house deposit. Right. And so, is this how most people buy their second and third properties? Like they're not saving more deposits or? Sometimes. So sometimes yes, sometimes no. I

mean, if your property hasn't increased in value and you've only been paying the interest component of a loan off, then you're going to owe what the property's worth and you're not really going to have any equity to use. But in the current property market, yeah, lots of people are using equity, especially, you know, I've given the example of the Mornington Peninsula, which is, I would say, a niche, but I called it niche if you know, you know, kind of example. But I think it's one of those things where lots of places around the country at the moment have increased in like such dramatic ways. And yeah, it's not uncommon to use it, but I think that a lot of people, especially if you're a first home buyer and that was such a big stepping stone and it took you like

10 years to save for your first home, you're not even going to think that another home might be closer than you think it is, but it could be. It's very lucky, very privileged, but we love that for our community. Indeedy. And is it true that you can also use equity for renovations? I feel like I read that somewhere. Yes, sir. You absolutely can refinance and get some cashola out to pay for trades on your house. And banks quite like that because you're increasing the value of the asset that they still technically own. So, not a bad idea, but at the same time, we really want to be making sure that if you're looking at a home and this is what I'm going through at the moment, George, and this isn't the property playbook podcast, but you absolutely should

go and check that out if you're into property. And I'll be speaking a lot in the next few months about my personal property journey. But when it comes to, you know, the reno that I'm about to do, which is very exciting, we've just signed off on it, George, we've tried really hard to make sure we know what to invest, which I at the start was like, well, how do you do that? I don't know. We paid x for it like renovations could be all the way up to like a million dollars like it's not we're not spending a million dollars but you know you look at it and you go we have a single story property um how much is that going to cost to do new bathrooms and new kitchen which we actually have to do because they're falling apart but you go how much can we afford and you look at the

equity and the property value and how much that is worth and we've worked out what we're comfortable investing into the renovation so that we don't overcapitalize on the property. So overcapitalization happens when say you purchased your property, George, for the $800,000 we're talking about before. And a bank would go, yes, George, your property is worth 800 grand, but you go, V, I want to put a pool in. I want to get a brand new spanking kitchen. I want some bathrooms. And you spend $200,000 on the property, so technically you paid $800,000 for the property and now you've technically got a million dollar property, but it's still only worth $800,000. That's what overcapitalization is where you invest more in the property than what it is worth. Oh, interesting.

So, I'm trying very hard to make sure that doesn't happen. And in the area we've bought, we've got, you know, I'm very grateful for it, but we've got this, I think, really cute little house that does need a lot of work. But talking through our options with a builder, we realized very quickly that putting a second story on our house was never going to be an option because it would have made the property and how much we were spending on the property, it would have been so much more money than what the property would be worth even if we did that extension. Does that make sense? So, it's interesting to talk these things through because I think a lot of people would just assume, oh, if you whack another story on there, it'll be worth more money, right?

Surely it'd be worth double. No, that's not how it works. And I was as surprised as you are, Georgia King. Okay, there we go. Let's move back to refinancing fee. Yes. At what point in the homeowner's journey- I heard that's what this episode was about.

Yeah, well, apparently we've gone a little to the left. At what point should we consider refinancing? Okay, so there are a few times at which you should be talking about this, right? And the first thing you want to do is make sure that your loan isn't tied up for a period of time. And the reason I say that is because mortgage brokers more often than not get paid via commission. And that is not a bad thing. It just means that the bank is paying them so that you don't have to pay them as much. Usually a mortgage broker isn't going to charge you a fee unless they're like, look, George, we're going to have to charge for the initial consult because it's

our time and you got no problems. But essentially a mortgage broker gets paid when your loan settles and you get the keys to your shiny new house. But George, that doesn't mean that you're personally paying more. It means that the bank is saying, hey, thanks Mortgage Broker for bringing this particular client to us without us having to do any work. We'll pay you for that client, which is really nice. But if you refinance within the first 12 months or the first 24 months, a thing called clawbacks happens. So, they will claw back the commission that they paid. So, they being the bank, that they paid to the mortgage broker and say, mortgage broker man, that client that you sent us that we paid you for didn't even last a year. We would like our

money back. And so, the money is taken back off the mortgage broker, which you might not care. I don't know. I would care. I wouldn't want a small business impacted by, you know, a decision that I'm making. But in your mortgage broking contracts, it is very likely that you might have to cover that fee. Okay. So, beware my friends. But if you're not in any clawback period, that is absolutely fine. There might be a change in interest rates you want to take up. I've seen a lot of people come through the Zillow doors recently. They're like, oh, my interest rate's four and a half percent. I'm like, my friend, what are you doing? Sit down, let's fix that. Or you might have a really big life event that happens in your life and you

might go, oh, starting a new job or someone's got sick or we're having a baby and we just want to re-look at our finances. I think that there are a lot of reasons we refinance, but from my perspective, what you should be doing if you own property and you have a mortgage is building a really good relationship with a mortgage broker. And the reason I say that is one, it's going to make your job really easy because every year or a couple of years, you're going to shoot them a text and be like, Hey Kate, that's my mortgage broker's name. Hey Kate, should we be refining? She'll quickly look up my file and be like, V, you've got 2.5% interest rate. No, I can't get any better at this point. And I'll go, thank you for your time. And then I'll talk to her later. Or she

might look at that and be like, oh yeah, actually, I could probably get you a better deal. Do you want me to have a look at it? I'll be like, yes, please. So, I think it's really important to have relationships like that because one, it takes a responsibility off you. You're not going and shopping around all of the big banks and working out what's going to be best for you. Your mortgage broker does it. And it's not going to cost you anything, but every time you send that text and it actually ends up being a refinance for what I would believe good reason, your mortgage broker benefits out of it too. Yeah. Gotcha. And are there any situations where the mortgage broker would reach out to you and be like, mate, the rates are looking good. Would you like to refinance or

is it more the other way around? Okay. Yes, absolutely. This is probably going to be a contentious kind of question that you're asking, Gee. And the reason I say that is, yes, Zella brokers do. So, like my financial advisors in my team do because we have, you know, a big list of clients and I am very on top of, you know, talking to my team about making sure that we are always making sure every single client is in the best possible position and being really proactive about that. But if there is a mortgage broker who, you know, is just looking for new clients and wants and write new loans, it's very unlikely that they might turn around and be like, oh, hey, gee, long time no speak. Do you want to refi? Because you might go, no, I'm happy. Thanks.

Some of them don't do it. It just depends what their priorities are. Because at the end of the day, like being really brutally honest, a brand new loan is going to be worth more money to a mortgage broker than a refinance. But from my perspective, it's about looking after the friends and family you already have. Yeah. Okay. Gotcha. Cool. That felt like a sales pitch for Zella. It didn't mean it to be. Nevermind. It didn't mean it to be. You're just good people doing good things as you would say. We try. We try. So how often do people typically refinance over the life of their loan fee? As many times as you want. It's not a bad idea to every couple of years have a look at your mortgage and see what's working for you. But in terms of how often people

do it. It really depends on the individual. So, it really, really is important to make sure that you understand your mortgage as well. So, for me, using me as an example, I'm self-employed. Like you guys know, I run cheese on the money and my income is very different to a salary and wage employee. So, I don't want to refinance all that often because if I do, it's such an admin nightmare George I have to like go through all my business and my business profit if it is even making profit and have all of that questioned and reviewed whereas my partner who has a salary and wage earning job he just has to provide like three months worth of bank statements and pay slips and make sure that they're all good to go so it can be a different experience for everybody involved

but typically every couple of years I would absolutely recommend looking at it but that's another warning or little red flag. If you're going to refinance every few years, George, you need to make sure that the term is the same. So, what I mean by that is, let's say tomorrow, George, you get a mortgage for $800,000 and you go, yay, I have my first 30-year mortgage. And in two years time, you go, I should refinance. I are two years ago to the day, listened to a She's On The Money podcast and they said I should review this. So, I am going to do just that. So, you go ahead and you go, hey, mortgage broker, can you get me a new deal? And they go, yep, interest rate's doing really well. Gee, I can get you a better deal. No

problems. What I want you to be aware of is not signing another 30-year mortgage because you've just served two years in a mortgage, George. So, you want to be asking your mortgage broker to make sure that your mortgage term is only 28 years because otherwise you'll be resetting that mortgage term to another 30 years, thus pushing out your mortgage for another two years. So even though you might be paying less interest or you might have less monthly repayments to make and you go, wow, this is really nice. You might be shooting yourself in the foot by resetting that mortgage term to 30 years when in reality you want your home paid off in 28 because you already served too. Does that make sense? It makes sense. Is that something that the mortgage broker would

flag with you or is that kind of your responsibility to make sure that that's what happens? I would say it's both. But given I don't know the mortgage broker you guys can talk to, I would say definitely flag it just to be sure. And any good mortgage broker would be like, gee, of course. And if your mortgage broker didn't pick that up, at least you did. Okay. And presumably there's no limit on the number of times that you can refinance? No, absolutely not. The only thing I would say is really important is the refinancing costs. So, you know how I was talking before about clawbacks and understanding whether there's going to be any money that's taken back off the mortgage broker or if you got like an advance. So,

you know how some mortgages recently are like, you'll get $4,000 in XYZ if you sign up to our mortgage. That will and I guarantee it have some kind of clawback in it that if you refinance before 12 months or before 24 months or something you have to pay that back and that's okay you just need to be aware of that but no there's no limit on it you do need to make sure that you're still going to meet the credit requirements of the lender that you're going to work with so making sure that's all good and your credit history is good is important but no there is no limit on that and that's why I always say just be on top of it like if there's better interest rate I'd be asking for it. And, you know, again, off topic, but I feel like I do this a lot. Before you consider

refinancing completely, because it is a lot of admin for everybody involved, have a look at what's out there. And if you see an interest rate that you're like, wow, I'm not paying that. I wish I was. Call your bank. Be like, excuse me, your bank over there is doing a very nice interest rate. Could you match it? And they might say, yes, no problem, Georgia. I will match it because I don't want you to, as a client, leave me. Or they might go, oh, gee, we can't match that. And then you'll scurry off to your bank and be like, hello, kind Sarah, it is worth me going through this admin nightmare to apply for a mortgage because my current bank will not give me what you have. Okay. Does that make sense? It makes sense. I hope it makes sense. It makes sense. Story adds up.

Doll checks out. You touched on credit for a second there, V, which leads me to credit scores. How important are they when it comes to refinancing? Very, George, because your credit score is going to be an indicator of what type of credit you have access to. So if you want the lowest of low interest rates and the best possible deal, they are only made by people who offer credit to people who have really ridiculously good credit scores. So it's important to understand that the stronger your credit score, the more reliable you essentially are to lend to. So banks will look pretty favorably onto you as a borrower. And then conversely, if you've incurred maybe some bad debt after getting your mortgage. Like you got your mortgage a fair few years ago and then

you've gotten some personal loans and maybe you've defaulted on one of the payments. You might not actually be able to refinance. So, it's important to realize that just because you got the mortgage in the first place doesn't mean another lender is going to scoop you up and say, yep, no problems, we'd love for you to be our client. Okay. I feel like credit scores are much more important than we give them credit for. Oh, she's funny. She's a funny gal. Thank you so much. She's on the comedy. I have three quick questions for you before we head to the break. I am aware that I'm picking your brains. That's your job. That is true. If we're switching from a variable loan to a fixed rate loan, is it true that there's a limit on the extra repayments that we can be

making? Because I read that this was a thing, but is it true? I love this. Yes and no. So, yes and also no. It depends on your lender and what the rules they've put in place are. Yes, so what you've read is arguably going to be very true. So, gee, when you have a variable rate loan, you can make as many additional repayments as you want to, depending on the loan, without being penalized for it. And that's because you're seeing the ups and downs of the market in the same way that you would in the share market in a way. So, it might be 2.5%, but then your variable interest rate might go up and they go, oh, cool, like your interest rate and your mortgage is now 3%. But a lot of people who are in a position where they're like, no, V, I really want a fixed rate

loan. The reason you would do that is to lock in consistent payments. So, instead of going, oh, well, gee, I know the interest rate could go down, but like even if it goes down, it's not worth the benefit of it going up and me not being able to pay the mortgage. So, if you have a fixed rate loan, it is very likely that you might only be able to pay up to a certain amount in mortgage repayments, and that could be like $10,000 a year, or it could be $30,000 a year, or $30,000 over the certain period of time that they've stipulated. And if you do actually pay it off more than what they have outlined, you might end up with a penalty fee, which feels like they're shooting you in the foot, but is something to be really aware of

because a lot of these really no frills kind of mortgage companies, they'll be like, oh my gosh, our interest rates the lowest on the market. And you go, oh my gosh, gee, that's so good. I'm going to skip the broker. I'm going to skip straight down the street and I am going to get a loan from them. But you might very quickly find out that that no-frills loan means you don't get an offset account, which I'm sure we'll talk about at some point, and you actually don't have the ability to make additional repayments. So, even though your interest rate is really low, it's not of benefit because you're stuck in the loan for definitely the 30-year period and you don't have the ability to pay it out early. So does that make sense? I hope it makes sense. I feel like

I'm making sense today. You are. You're speaking clearly and concisely. Well done you. Thank you. Thank you. I'm here all day. So now I'm assuming would be a good time to be refinancing because the interest rates are low. If you haven't done it in a couple of years, it is always worth revisiting. And I guess I'm biased because I do believe deeply in mortgage brokers that are not bank aligned. So that sounds bad because I have a lot of friends who work as mortgage brokers at particular financial institutions. Like they might be like Commonwealth or NAB, or there might be a Westpac or, you know, any of the big four. But the reason I would say go to an independent mortgage broker is because they can look at every single mortgage product on the market and also like the

credit unions and stuff and get you the best possible deal for your situation instead of just skipping down to Commonwealth, which Commonwealth mortgages might suit you perfectly, G. But if you walk in their doors, all they're going to be able to offer you is the Commonwealth mortgage. Like they're not able to actually go, hey, gee, so the Bendigo Bank one is actually better for you in this particular situation. Or, you know, you might want an offset account or a redraw facility or something that helps you financially. And Commonwealth will be like, yeah, no, we just don't do that. This is our mortgage. We've got two options. So, I just see such value in people going to mortgage brokers because it doesn't cost you any more, but will save you a lot over the

long period. Yeah. I don't know. Very heated about that. No, well, it just, it just makes sense. Guys, it just makes sense. It makes the sense. So, Fee, when can we expect those interest rates to go up? I know you can't see into the future, but do you have any indication of when things will be spicing back up a little bit? Oh, when do the interest rates become spassy? I think it's going to be a little while. And the reason that I say that is, I mean, the economists at the moment are predicting that interest rates are going to surge soon, but the Reserve Bank of Australia has actually forecast that it might be some way off. And I would trust them over the economists in this particular circumstance, just because of what

we've gone through with COVID. And I say that because can you imagine if we as Australia, as a country, as a community have gone through what we've gone through over the last two years. And then all the banks like, by the way, your mortgage repayments are more like that is not going to be good for property prices. It is not going to be good for the economy in general. Everybody is going to stop spending because they're spending more on their mortgages and be a little bit more frugal. And it's not actually going to help economic growth in any way, shape or form. So from my perspective, I don't think that they will go up significantly. I mean, I think that they might go up in terms of, you know how at the moment you can get like 2.5% fixed rate

mortgages? I think that that might go up. But if you already have one, you're not going to be stung with like a 3% sharp increase because of inflation. Does that make sense? So, I think that we're relatively okay. So, when it comes to rising interest rates, I think it's important to keep an eye on what's going on. Because I mean, at the moment, I think you can go and get a variable rate of 1.99% per annum at like 86,400 and our friends at UBank. And it's one of those things that I don't think that your personal variable interest rate on a mortgage is going to change, but I do think that that might increase over time. Over the next six months, I think that we won't see 1.99% because we can't afford it or banks can't afford it, but I don't think we'll be shooting ourselves

in the foot by increasing actual consumer's loans. But that's personal opinion. And at the end of the day when you went and got a mortgage, you would have been assessed at a higher interest rate to make sure that you could service that. So, I don't think too many people will be in a worse off position. But when it comes to the RBA and the government, I genuinely believe they're going to make sure that everybody's relatively okay. We've had a pretty rocky ride. All right, cool. Well, I think we'll leave it there for now, V, but we will be back after a very short break to discuss how to actually refinance our mortgage, like the nuts and bolts, How do we actually do it? And we will also be flagging the common mistakes Vicky D sees when

it comes to refinancing. So, please don't go anywhere. Alrighty, V, straight back into it, my girl. How do we actually refinance our mortgage? Well, I mean, like pragmatically speaking to refinance mortgage, you're going to need to firstly have a mortgage to start with. So, that's usually a great place to start. Check your bank accounts, check your financial sitch. if you've got a mortgage, you, my friend, could be up for the exciting process of refinancing. After that, I would actually sit back and go, what are your goals? Why are you refinancing? You're doing it because you just heard this podcast episode and you're like, what a good idea. Or are we actually refinancing with the intention to save money? Is it to fund a renovation or is

it to purchase an investment property or a new home? Like what's the plan? It's super helpful to have a reason here because often if you're going to sit down with a broker or you're going to do it, like what are you even looking for? Because you might go, all right, well, their interest rate's better, but you might also have a whole heap of savings that you want in an offset, but that new interest rate with a different bank might not actually offer an offset facility. So I do recommend, and I know that not everybody is going to agree with me here, but I do recommend fully wholeheartedly going and talking to a broker because they are going to be able to make sure that everything you want to achieve happens if it is actually possible and you still get all

the benefits from your original mortgage. Like you might not even know that you have some kind of benefit with a mortgage and you might lose it, if that makes sense. So I think it's really important to just know your stuff, but also more importantly, know your goal. Like why are we doing this? Is this just because you listened to the episode? Oof. If it's true, George, look at us. We are little influencers. I believe they call them finfluencers now because we're financial influences. Well, I mean, you are, Dole. Babe, you here too. You're here every week. Like if you think you are immune to this, you are wrong. You as well. Well, that was the weirdest laugh ever. Sorry. Continue. Nope. We love that. Keep that part in, Sam. The next bit is do research.

So make sure that you are scouting around for the best deals and the best options and the best rates and the best value around. So obviously I'd recommend chatting with a mortgage broker, but you can also use comparison websites, but do keep in mind that comparison websites often earn commission from ranking certain lenders higher than others. I have, you know, a little bit of insider information that that happens quite often and that different lenders pay to come up at different rankings on those comparison websites. So please don't take them as gospel. Make sure that you are making the right decision for you, not the right decision because there was a sponsored ad at the top of the page. And remember that mortgage brokers won't charge you as they make

money from the lender that you are referred to, not a more expensive rate for you. I think people just assume that the cost is absorbed into the mortgage. It's not how it works. If you see a rate on the website and you go direct, it will be exactly the same as what the rate you get with your mortgage broker is, I promise. Okay. So, the mortgage brokers are essentially free. We love that. We are encouraging people to have conversations and engage with the brokers. Yes. But there are still some fees associated when it comes to refinancing, right? Yes. Yes, there are. And quickly before I tell you what those are, I think it's really important for me to, I guess, outline that some mortgage brokers actually will charge you a fee. And the reason

they're charging you a fee is because after the Royal Commission, compliance increased significantly. like I mean we are doing triple the amount of work that we were before for work that might not go through because lending has gotten even harder after the royal commission so it is not uncommon practice nowadays for you to go to a mortgage broker and say hey mortgage broker um it's my first loan I'd like to get pre-approval and they go yeah no problems pre-approval is $450 and you might scoff at that and be like what the hell like I thought this was going to be free but what you have to understand in this day and age especially in 2022 is that so many people get mortgage pre-approval and then let it lapse because mortgage pre-approval usually only lasts

for 90 days so for three months and you might not find a home in that period of time so this mortgage broker has done a whole heap of work for you and has had no payment because they only get paid once that loan settles so they've done that and then after that 90 days they might have to go back through the same process again, which is fine. Most mortgage brokers are absolutely okay. But George, as you know, property market's pretty hot. It might take you 12 months to buy. So they're doing all these pre-approvals and all this work that they aren't getting paid for. So it's very common nowadays for a mortgage broker to go, hey, gee, get it. But pre-approval is actually $450. And you might go, oh, I was just getting

pre-approval because I wanted to see what I could buy. I wasn't too serious. So it kind of scares away the people that aren't super serious. But then if you do pre-approval with a particular broker, they're just going to renew that for you whenever you need it. So you're not going to pay that $450 every three months, if that makes sense, because you've shown that you're serious about it. So I don't think that in the grand scheme of property and how much property is going to cost you, that's a fee that we should be worried about. But I just want to put it on the table because I know I've had a few messages recently from people going, oh my God, they tried to charge me and they're women to be free. It's like, oh no, I totally get why they might. And you know what?

If your broker's charging you, it's very likely that they are a good broker and they're just making sure that they're only working with good clients. Stunning. Thank you for coming to my Broking Ted Talk. Loved it. I will get back onto the question you asked me, which was what are the fees associated with refinancing? So first things first, if you have a fixed rate mortgage, there could be a fee for you getting out of a fixed rate mortgage. It's twofold. You could be shooting yourself in the foot and you go, oh, well, I know I get a lower interest rate, but that's a really big sum of money. Or you could go, that might be a big sum of money, but you know what? I'm going to save more by changing my mortgage. So do the math to work out what is going to work best for

you. Number two is there could also be an application fee for your new loan. So be aware of that and do a little bit of Googling around what that could mean, or just ask your broker. And you might have to pay a switching fee if you're switching loans, but staying with your current lender because if banks don't make money, what do they do, George? And the fourth and most frustrating one is a termination fee and that could pop up at some point if you're terminating a mortgage before the end of your term. So, just be really careful with these costs because you don't want to refinance to a new bank and go through that entire process without having evaluated the loan you have because I guarantee, George, that new bank is not going to be like, oh my gosh,

have you considered the termination fee on your other mortgage? They're just going to go, heck yes, Georgia's moving banks. We're going to take her. So, you might have already signed off on a new refinance and then get stung later after you've transferred the mortgage. So, just make sure you know what you're talking about and you are doing your due diligence. Okay. Well, speaking of due diligence, did I say that properly? Yeah, sounded about right. What are the common mistakes that people are making in the refinancing space be? There are a few and you would be very excited to know. I have pre-listed a few of them. Are you ready? Are you sitting down? Are you excited? Yeah, girl. Oh yeah, bring it. All right. So, G, the first one out the gate is people underestimate,

and this is super common, how much you can actually save by refinancing. Because you might go, I don't need to refinance. My mortgage is like 3%. It's only 2.5%. Like, why bother? But you absolutely should be bothered because we haven't said this quote on the podcast in a really long time, but gee, from little things, big things grow. And if you were thinking of refinancing your mortgage, but decided against it because the best rate you can find is only like 0.5% lower than your current rate, I absolutely wouldn't be dismissing it because if you start breaking it down and we use an example of you know how earlier in the episode we said that you had $500,000 equity let's use a $500,000 example so let's say half a percent on $500,000 you go that's

not much right but it is because a $500,000 loan means that if you refinanced you'd be paying $2,181 each and every single month instead of $2,300 and that doesn't sound massive but over a period of like five years, that's 7,560 bucks. And if you have that loan for 25 years, which most of you might, because that's the standard term for mortgages, that's 37,800 grand. Like what? That's not even including like compound interest if you decided to invest it instead of paying it off your mortgage. That's insane. Is that correct? That is absolutely correct. And that's way more than one year worth of mortgage repayments. So 0.5% could actually mean wiping like three or four years off your mortgage to begin with. So like, let's just calculate that and work out what

that actually means for us. Because too many times people are like, it's not worth it. It's half a percent. I just did the maths. It wasn't quick, but it was correct. Precisely. All right. You're Welcome. You're welcome. The next thing, I don't think anything can be as sexy as the maths we just did together, George. But the next thing that I feel like is a relatively common mistake is forgetting to factor in the costs of changing lenders. Like as we said earlier in this episode, while most mortgage brokers don't charge fees for this, there are still multiple fees that are attached to mortgage refinancing that you need to be aware of. And if you're breaking a loan and you're still within the period that you had signed up for, it could cost you thousands of

So let's just be really careful. I'm hoping that this podcast pumps you up and gets you super motivated, but not so motivated that we gloss over all the important stuff. So to counter this and make sure that your decision is the right one to make when it comes to refinancing, have a chat with a broker. I can't say that enough. The next common mistake that I've got listed down here, George, is believing that you probably can't refinance a fixed loan. So that is absolutely not true although it can be a little bit more complex and a little bit harder to get out of and maybe there are a few fees attached to it a broker will know what is going on here but it actually could be worth you potentially paying those break fees to get a really good interest

rate like we were talking about the 86 400 bank earlier and their 1.99 interest rate like that's pretty good imagine if you were like on a standard four percent which three or four years ago was standard and you're literally going to cut your interest repayments in half, like maybe that is worth a thousand dollars in a break fee. Maybe that is worth $2,000 in a break fee. And you might scoff at that and be like, Victoria, a thousand dollars is so much money. And I'll be like, um, yes, but did you not hear the example before I gave Georgia where you're going to save $37,800 over the lifetime of your loan? Are you going to pay a thousand dollars now to save that in the future? Maybe. Yeah. I don't know. I just feel like that's really important to consider.

And the fourth thing, G, which I feel like I've been harping on about recently. When am I not harping on about something related to finance? But I did it the other week when we were doing book club and we did the first book, The Richest Man in Babylon, and I was talking about trusting professionals. So I feel like one of the most common mistakes is trusting the wrong people and not trusting the professionals and thinking we can do it ourselves. Well, your dad once refinanced his mortgage, so he knows it. And as much as we all love our dads and, you know, we are grateful to have help from family

and friends and people that want to help at the end of the day, if they aren't finance professionals, I would really avoid taking advice from them because, George, as I said on that episode, you wouldn't buy diamonds off a bricklayer. So I just think that it is really important to trust the professionals when it comes to refinancing, because even though your Uncle George's best mate Bill can actually refinance your loan and he might have a really solid thing to say, is it actually the best thing for you? And given most mortgage brokers are free, why don't we just go into the pros, G? Yeah, definitely. I feel like just because people speak with authority,

it doesn't mean they are the authority. Oh, G, I actually have one more. Can I add one more thing? I said I was done, but I wasn't done. I'm not done. Are you ready? Sit down. Please. The most important thing is not the interest rate. Like people seem to think, and I mean, I've just hopped on about it. So I will absolutely forgive you guys if you were like, but I thought the interest rate was really important. It is, but it isn't the be all end all. Like don't forget about a whole heap of other perks, like potentially having an offset account or the ability to split a loan or have a redraw facility if that's in line with your values. Because I'm telling you right now, my mortgage is not the

lowest interest rate on the market. And the reason for that is because I wanted to have an offset account facility and that wasn't available on the lowest interest rate loan on the market. at that time when I did this, what, like maybe 15 or 16 months ago. But I think it's really important to not focus solely on the interest rate because you might be getting a super good rate. Maybe you need a really basic loan, but more often than not, those super basic loans don't have all the bells and whistles that you might want in a mortgage facility. So, I think that's really important to take into consideration too, G. V, just before we head off, obviously the last two years for pretty much everyone everywhere have been dumpster fire. Is that what we're

going to call it? Yeah, the old garbage fire. So for anyone listening right now who is struggling to meet their mortgage repayments, do you have any words of wisdom or advice as to what they can be doing to make life a little easier? Of course I do, G. I think the first is realizing that you're not alone. So many people around the country are going through this at the moment and the best thing you can do is reach out for help. If this is something that is putting unnecessary pressure on you, please, please, please pick up the phone and call your bank. Like call whoever you've got your mortgage with, regardless of who they are. And just be like, I'm experiencing financial hardship. I really need to have a chat with somebody

and they will negotiate with you. And it's not necessarily you having to call and fight for your life and negotiate really hard to get a better loan. Like that's not what we're doing. They might actually turn around and be like, George, we totally get it. How about we freeze your mortgage for a couple of months? And that could actually give you the financial freedom to build up a small emergency fund so that when you do get back on your feet or once you've had those, you know, two months of freeze or whatever they might be able to give you, you feel a little bit more financially confident. They might be able to refinance it so that your mortgage repayments are lower they might actually have a number of financial hardship things that you can lean on

and I think that the most important thing here is too often and I have this conversation in the she's on the money community I will recommend to somebody to contact a bank or contact somebody and explain that you're experiencing financial hardship people be like but I'm not homeless oh but but I do have an income oh but Victoria no no I'm not experiencing financial hardship like I have a thousand dollars in savings. And like, I totally get that there might be this stigma around what is and isn't financial hardship, but financial hardship is when money is stressing you out. And regardless of your financial situation or what you do and don't believe is financial hardship, if you are feeling stressed about money, we shouldn't feel that way. We should

be talking about this. We should be having conversations with people. We should be calling up our mortgage company and being like, hey, is there anything I can do? And maybe they'll say no, but that's when we can reach out to our friends at the Debt Free Hotline. Like they're honestly angels and I'm never paid to talk about them. In fact, we've never even talked about it. I just am such a big fan of their work and what they do. They can help you with free financial counseling. And again, you don't have to be experiencing the worst financial hardship you can even think of to be able to reach out and use their services. Money is stressing you. That is financial hardship. Please use these services. They exist for a reason. So I think that my words of wisdom there

would be having a look at that, obviously having a look at your budget and cashflow and making sure that you are spending within your values and what needs to be spent, but absolutely rely on the professionals here again. Yeah, really well said there, V, as usual. Guys, if you did love today's property-focused podcast, then please remember to check out the Property Playbook. That's where Victoria Devine herself and our friend Amy Lunardi, who is a home buying genius, they go deep on all things property. So, if you haven't listened already and you are interested in home buying or you already have bought a home, that is the place to go. V-Lord, I think that is all we have time for today. It is all we have time for, but Jay, just before we head off,

we'd like to acknowledge and pay respect to Australia's Aboriginal and Torres Strait Islander peoples they're the traditional custodians of the lands the waterways and the skies all across australia we thank you for sharing and for caring for the land on which we are able to learn we pay our respects to elders past and present and we share our friendship and our kindness and remember guys that the advice shared on she's on the money is general in nature and does not consider your individual circumstances she's on the money exists purely for educational purposes and should not be relied upon to make an investment or a financial decision victoria divine is an authorized representative of in focus securities australia proprietary limited abn 47097797049 afsl 236523

oh she got that one out good work she's nailed it let's see how you go on friday bye guys bye guys you