Unsatisfied with your rates or seeking better customer service? You’re certainly not alone. There are always plenty of home loan borrowers looking for a better deal.
But while it might look like a good idea on a quick glance, refinancing has its hazards and needs to be considered carefully before going forward.
Despite the smaller number of players and number of mortgage products in the mortgage market, competition is still alive in Australia, as shown by the results of this year’s Mortgage of the Year Awards.
The latest data from mortgage broking company AFG also showed the proportion of homeowners refinancing their mortgages hitting an all-time high, driven by the recent interest rate increases.
While refinancing is a necessary tool for borrowers who have been hit hard by the recent rate hikes, it is currently not as easy as it once was, as banks are holding their dwindling funds close to their chests.
What to first consider
When refinancing CAN make sense:
- Your lender’s rate isn’t staying competitive with others in the market
- A major change occurs in your financial situation
- You are looking for more money to pay for home renovations, a child’s education costs, or invest in another property
- Switching to a fixed rate at an opportune time
- You’ve started to see large credit card debts and want to consolidate
When it might NOT make sense:
- You might not own the property for much longer
- Prepayment penalties are high on exiting home loan
- Since your previous loan your credit history has taken a hit due to outstanding debts, making it less likely you’ll get a good rate
- You’ve got an uncertain income over the period of the loan, such as work as a freelancer
- Your loan balance is low and you’re not thinking of redrawing on available equity
Before refinancing, a borrower should consider their circumstances over the next three years. You should ask yourself whether flexibility, a lower rate, lower fees or debt consolidation is the goal.
Just chasing a lower interest rate won’t be enough. You need to think about the entire life of the loan, not just the headline interest rate. Also think about the costs of changing to another lender.