At Mortgage Broker Group, we are seeing a surge of enquiries from people looking at refinancing their home loans. With rock-bottom interest rates looking like the new normal for the foreseeable future, many borrowers are casting an eye over their existing loan rate and seeing whether there’s a better deal elsewhere.
Add to this the social and economic impacts of COVID-19, with unemployment rising and wages being smashed, and the desire to ensure you have the best deal only intensifies.
Refinancing – the basics
Refinancing your home loan typically means taking out a new loan with a different lender. The new lender pays your old loan off and transfers the debt, and you make repayments to the new lender.
The most common reason to refinance is to take advantage of better loan conditions offered by a different lender. While it’s usually a lower interest rate that prompts a move, refinancing might also unlock other conditions such as offset accounts, linked credit cards and redraw facilities.
At a time of rising unemployment and economic uncertainty, reducing expenditure is more important than ever, and refinancing is a good way to save if you’re not on a low home loan interest rate. Keep in mind that refinancing may incur fees: If your loan was taken out before 30 June 2011, it’s likely that you’ll need to pay an exit fee to change lenders. In addition, banks commonly charge fees for early termination of fixed-rate loans.
Interested in interest
In April 2020 the average interest rate was 2.76% according to the Federal government’s moneysmart website, but there’s a huge range of rates available, ranging from just over 2% right up to more than 5.5%. On an average 25-year home loan of $400,000 that’s a difference of about $750 every month in repayments from the lowest to the highest rates available today. That amount of money is enough to make anyone sit up and take notice.
Loan features
So why doesn’t everyone just switch to the lowest rate available in the market? Changing banks is a hassle as it means changing any automatic payments you have set up, changing where any income and superannuation is paid to, and filling out boring paperwork.
More than just the annoyance factor, though, is that other loan conditions such as offset, redraw and credit cards work well for many people, and are worth the cost of a higher interest rate.
Cash back deals
With low interest rates, there’s renewed interest in fixed-rate loans, where the interest rate I locked in place for a set period of time – usually 5 years. Led by the big bank lenders, there’s also new cash-back incentives offered to borrowers who refinance to a fixed-interest loan. Switch and you might qualify for a ‘gift’ of $4000.
Given that you’ll be paying well over $150,000 in interest on a $400,000 loan, $4000 isn’t a lot of money in the long run. But it would cover a couple of months’ repayments, so it’s still worth considering.
Brokers can help
Every day, brokers from Mortgage Broker Group look at the financial situation of borrowers, understand their spending habits and the type of loan they prefer, and survey the market to see if refinancing will be of benefit, both in the short term and over the life of the loan.
Annoying paperwork is dealt with, and we use our buying power to negotiate the best rates available – sometimes lower than the banks offer direct to their customers.
Best of all, our services are offered to you at no cost (we receive a small commission from lenders for each loan). There’s no obligation and no pressure, so you’ve got nothing to lose.
Contact us today to see whether refinancing your home loan will result in a lower rate, and more dollars in your pocket.