by Greg Carroll Attitude Finance www.attitudefinance.com

The recent rate rises outside of RBA monetary policy have made people re-consider their lending and of course many people have been considering fixing. While rate is without doubt an important consideration I would like to suggest it should not be your only consideration in reviewing your finances. I would like to suggest structure is equally important.

If you are considering refinancing what are you really looking for? Answer - to lower your finance costs so you have enough for other living expenses without feeling squeezed. In other words what you really want is to improve your cash flow.

So let's say your loan is $300,000 and your current rate is 8.5%. Over 30 years your repayment would be $2,294 per month. Let's say you could refinance onto a rate of 7.97%, that would drop your repayment to $2,195 so you almost save $100 a month. A saving but not a huge one.

But what if you also restructured so you put your lending on interest only? Your monthly commitment would now be $1,992 - a reduction of $302 per month or $3,624 per annum. . This means that your contractual repayment is less so if your cash flow is a bit tight one month there is $300 less you have to find which might be good when your rates, electricity and insurance all hit at the same time. 

Now of course with interest only your repayments are not reducing the loan balance but with most interest only loans you can make additional reductions at any time so you could still tip your $300 saving or more if you like into the loan each month and begin reduce your loan balance. This will also reduce the amount of interest you pay.

This is just one example of how the structure and not just the rate will have an impact on your cash flow. As an investor there are a number of other structures you can adopt to improve cash flow and allow you to acquire additional property.

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