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Refinance to Fixed Rates is the Best Time?

By madhu on June 26, 2014
Its June 2014, We are looking in Sydney at a healthy real estate market coupled with low bank interest rates. Money-savvy young professionals who are in the wealth accumulation phase pose an interesting challenge to banks and advisers.

Its June 2014, We are looking in Sydney at a healthy real estate market coupled with low bank interest rates. Money-savvy young professionals who are in the wealth accumulation phase pose an interesting challenge to banks and advisers. For the typical wealth accumulation client, borrowing facilities are often more relevant than complex superannuation investment strategies.

So how can we ADD value to a client who has long-term borrowing commitments?

One approach we have seen work well is the financial health check. Personal circumstances, spending behaviour and property values are constantly changing. Yet often clients fail to reassess the structures and facilities they took out years before. In our experience this is where the regular health check becomes invaluable as it can uncover opportunities which could make a huge difference financially for clients.

So what’s the process? ASK YOURSELF

Is the current structure suitable for growth, asset protection and future cash flow.

Keeping things simple is key.

• List all the assets with their corresponding liabilities.

• If the assets are property, carry out property valuations.

• Identify if any surplus equity exists within existing structures.

• Evaluate against the investment objectives:

1. Minimizing finance costs;

2. Releasing equity for property renovations;

3. Releasing equity for investment property purchase;

4. Releasing equity for other investments.

This analysis will then allow you to engage with a bank or finance broker and identify what alternative financing options are available in the wider market for your specific client. Refinancing the existing property loan is often the most logical approach.

Why should your client choose to refinance?

• The potential to save cash on their home loan – given the unprecedented low interest rates the Australian mortgage market is experiencing at the moment, an increasing number of homeowners are moving to fixed rates for at a portion of the loan amount. As well as locking in lower repayments, the client will also have the security of knowing the repayment amounts will stay the same from month to month.

• To optimise their debt position – revaluing the client’s residence and refinancing can release equity to reduce other inefficient lending such as personal loans, motor vehicle finance and credit cards.

• To free up equity for other purposes such as for purchasing investment property, financing renovations or injecting into a business or practice.

• Have that long intended holiday

If the decision to refinance is considered the best option for the client, remember to compare the finance cost saving against any potential break costs.

Article written by madhu

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