Interest rates in Australia have hit their lowest in history, and are unlikely to head in an upwards direction for some years to come. Philip Lowe, Governor of the Reserve Bank of Australia indicated the cash rate would be likely to stay at 0.25 percent for some years, and the board would not increase the cash rate until there is progress towards full employment and the target range for inflation.i
Refinancing your home loan is a great way to take advantage of this low interest rate environment. For those with a mortgage, it’s a golden opportunity to save thousands, if not tens of thousands, of dollars over the life of your mortgage and is definitely not to be missed!
Refinancing on the rise
According to figures released by the Australian Bureau of Statistics (ABS), there has been a 52.1% increase in refinancing compared to June last year. The current low interest rate environment, together with changes in financial situations for many due to COVID-19, could be driving the significant increase compared to the same time last year.
So don’t get left behind, talk to us about refinancing your home loan as soon as possible to take full advantage of the low-interest home loans now available.
So why refinance?
Refinancing is replacing your current home loan with a new one, usually with a different lender. Whether you’ve taken out a home loan in the last 12 months or have been paying yours off for some time, it can be worth assessing if there is a better loan for your current circumstances.
Most homeowners refinance in order to save money and reduce the term of their home loan, however there are many ways refinancing can be used to improve your financial position or lifestyle.
By refinancing, you can access the equity you have in your home, which can then be used to renovate and add value to your home, buy an investment property, invest in shares, fund your children’s education or even start your own business.
Some homeowners are motivated to refinance in order to get a home loan that is better suited to their circumstances and access features such as a redraw facility, offset account, flexible repayment arrangements, or to change the type of loan, eg from a variable to a fixed rate.
Refinancing can also be a strategy to consolidate your debts including credit cards with high interest charges or personal loans into one easier to manage, lower interest rate payment. If you are suffering financial hardship we can help you negotiate with your lender. They may agree to charge you a lower interest rate, not charge further interest payments for a period of time or other options that could improve your ability to manage your financial situation.
What to watch out for when refinancing
While refinancing can save you a great deal of money over the long-term, it’s important to be aware of some of the potential costs and downsides when replacing your existing home loan. These include:
Discharge fees: you may have to pay a discharge fee to your current lender in order to terminate your loan.
Break fees: this is a fee to compensate the lender for any loss of profit they have incurred on a fixed-rate home loan.
Upfront costs: these are not always charged on home loans but they can be when refinancing. They include establishment fees, settlement costs and valuation fees.
Lenders Mortgage insurance (LMI): If you’re planning to borrow more than 80 percent of your home’s current market value, you may be asked to pay lenders mortgage insurance, even if you already paid this with your previous lender.
Higher total interest payments: While refinancing is often with the goal of finding a lower interest rate, extending the length of your loan may mean you end up paying more interest over the total length of your loan.
How can we help?
Refinancing a home loan is a big step and the home loan environment is complex but we are here to guide you through the whole process and find a solution tailored for your needs.
Stuart Fitzpatrick and Excel Financial Advisors Pty Ltd are authorised representatives of Interprac Financial Planning Pty Ltd AFSL 246638 registered office at Level 8, 525 Finders Street, Melbourne VIC 3000. This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.