by Stephanie Williams
Refinancing your home loan isn’t as daunting as it sounds. A rate cut by the Reserve Bank of Australia doesn’t guarantee your bank will pass on that rate and most people don’t realise it’s relatively easy to shop around.
Paul Hale, a mortgage broker with Loan Market says it’s not only saving money that drives a person’s desire to refinance. “It’s usually to get a cheaper interest rate and save some money. But for some it’s also to release cashflow by restructuring their current loan or consolidate other unsecured debts and pay them out using the equity in their home,” Paul shares.
With the current low-interest rates, is now a good time to refinance? Paul says, yes. “Lenders are offering bigger discounts off their standard variable rates for the life of the loan, so you’ll have a cheaper variable rate for as long as your loan exists. Discounts on fixed rates are also bigger.” He went on to explain, “I believe we’re in the middle of a lender price war with discounts being offered of 1.4% or more off the standard variable rate, when standard discounts have historically been around 0.7-0.8%. In my opinion, when this price war ends, these discounts will be absolutely outstanding.”
Start in your own backyard. “Always, always, always go to your existing bank first and ask them to match the rate and product you’ve been offered. It’s rare that they can’t or won’t, but a greedy broker won’t tell you to try this.” It’s important to get an accurate picture of the true cost of your proposed refinance. “That’s all exit and entry costs,” Paul says. “Balance that against your proposed savings and then make an informed decision whether or not to proceed.”
Once your new loan is set in stone, diarise to healthcheck your mortgage every three years with your broker. “Things change and, as evidenced by the last couple of years, those changes can be dramatic,” Paul shared. “Also look at your options if your situation changes, for example you renovate, buy another property or sell and buy.” Make sure you’re looking at the whole picture – it’s easy to underestimate the costs, which include statutory exit fees from your current loan or fixed rate economic break fee, plus setup fees for your new loan.
Change to a new lender who might lend more money than your current one, which may enable you to buy an investment property or larger home later. Free up equity to pay out expensive, income draining unsecured debts. Free cashflow by extending a loan term back to 30 years or even switching to interest-only. Free up equity to extend your home, buy lifestyle assets, pay school fees and make investments.
This article is taken from the September issue of The Listing, Ray White’s monthly magazine.