As interest rates continue to rise, more and more Australians are on the lookout for a better deal on their home loans. Refinancing their mortgages is becoming an increasingly popular option.
In 2022, the Reserve Bank of Australia started to raise rates from record lows, and this led to a record number of Australians switching to alternative options. In July of that year, $18 billion worth of loans were refinanced, according to data from the Australian Bureau of Statistics (ABS). The trend continued throughout the year, with total refinancing reaching $19 billion by December 2022.
As more fixed-rate home loans are set to expire in 2023, the number of people looking to refinance is expected to increase even further. Mortgage brokers are already receiving a flood of calls from individuals who are feeling the strain and hoping to secure a better deal.
Refinancing your home loan is a relatively straightforward process, and it can be worthwhile if you can find a better interest rate with another broker. Additionally, if you need to withdraw some equity from your home, increasing your existing home loan through refinancing may be a good option.
Instead of paying a "loyalty tax”, consult with your broker and ask them to see if there are better options available to you. By refinancing, you may be able to reduce your mortgage payments and overall interest costs.
Find The Best Interest Rates Available
It's important to do your homework when it comes to interest rates on your home loan. The Reserve Bank of Australia has raised the cash rate to 3.35%, which is the highest it's been in a decade. Interest rates will vary between lenders, so it's important to find a broker that has the ability to shop around for the best deal.
While interest rates for new customers are currently around 5.25%, existing customers may be paying a higher "loyalty tax". Keep in mind that even a small reduction in interest rate can make a big difference in the long run, especially if you have a significant mortgage.
When comparing rates, make sure to look at the comparison rate, which takes into account not only the interest rate but also any fees associated with the loan. This will give you a better idea of the true cost of the loan. An interest rate offer with a high comparison rate may not be a good deal, as it means that the true cost of the loan, including fees and costs, is much higher.
It's worth taking the time to compare rates and find the best deal for your circumstances. By doing so, you may be able to save money on your mortgage payments and reduce your overall interest costs. When it comes to home loans, some borrowers prefer the certainty of a fixed interest rate, which remains the same throughout a fixed-rate period. Others choose to split their loan between fixed and variable rates, while some may refinance to digital loans offered by neo banks in Australia, which often come with competitive rates.
There's no one-size-fits-all approach to choosing between fixed and variable home loans. It's important to assess your own situation and determine the level of risk you're willing to take on.
Contact Your Broker Before Switching Loans
Before you switch loans, it's worth contacting your broker to see if they can arrange a better deal. Let them know that you're considering switching and that you need a lower rate to stay with your existing lender.
Your broker will first negotiate with your existing lender. He/she will mention the rates and fees being offered by other lenders to give you some bargaining power.
The success of this strategy will depend on several factors, including the size of your debt and the amount of equity you have in your home. Your credit score will also play a role in your ability to negotiate, so it's a good idea to check your score before talking to your broker.
One advantage of your broker negotiating with your bank to lower your interest rate is that you can avoid the hassle of going through the refinancing process. Your loan package will remain the same, with only the interest rate changing. Keep in mind that your lender may try to charge you a fee for changing your rate, but many customers have successfully had these fees waived by their broker.
If your lender won’t come to the party, then your broker will look at your refinancing options.
Steps to Refinancing your Home Loan:
- Your broker will compare options from different lenders.
- Once your broker has chosen a lender, you will need to go through a formal application process. This involves providing details about your income, assets, liabilities and expenses. Your broker will then prepare the paperwork for you to sign.
- After your application has been approved, your broker will inform your current lender that you want to be discharged from your existing loan. The new lender may conduct a property valuation on your home.
- Your broker will organise everything so that your new lender will pay out your old loan and set up your new loan in their system. You will receive new documentation from your new lender and can start making repayments, and most importantly START SAVING MONEY.