Australia’s interest rates have been lifted by a further half-percent, from 1.35 to 1.85 percent.
This latest move marks a 175-basis point increase in the rate since it began hiking in May, and the Reserve Bank of Australia’s (RBA) sharpest tightening phase since 1994.
As investors continue to bet on the RBA lifting its cash rate into 2023, now is a good time to consider refining your home loan.
By comparing your options, you may be able to find a loan with more features, or one that assists you to free-up equity, or may even be able to consolidate multiple debts into one.
We have summarised below, the four key reasons you may wish to consider refinancing your home loan.
Find a more competitive interest rate:
One of the most common reasons homeowners look to refinance their mortgage is to secure a more competitive interest rate. With a lower interest rate, you could:
- Lower your monthly repayment without altering the amount of interest you pay over the term of your loan, or
- Maintain your repayments but pay your loan off sooner
The interest rate isn’t the only consideration when refinancing. Some lenders offer home loan refinancing deals to entice borrowers. These often come in the form of a cash payment or waived fees. A cashback deal should not be the main determinant of whether you switch to a lender, but can be factored into the calculation of how much you could save, over the life of the loan.
If you need additional funds, for example – to conduct renovations on your home, you may be able to use equity built-up in your property. This could be done through:
- Refinancing your loan amount by leveraging the equity as security, or
- Potentially accessing a line of credit, which allows the borrower to take out funds up to a certain limit at any time
Make use of features:
Not all home loans are equal – some come with features attached that may be useful for some borrowers. For example:
- Some may offer an offset account or redraw facility that can enable you to put more money toward paying off the loan
- This will save you in interest, and you can still access it, if you need it
Note that these features often come with an additional price tag, so it’s a good idea to calculate the potential savings, while considering the fees.
If you have multiple debts, such as credit cards, car loans or personal loans, it may be a good idea to consolidate them into one. This could merge repayments so you only have one and potentially get your other debts into a loan with a lower interest rate.
When can you refinance a home loan?
There is no hard and fast rule around when you can refinance your home loan. The key consideration is fees. For example, if you currently have a fixed-rate loan, you will likely incur break fees if you wanted to refinance. There are also fees such as application and discharge fees, and property valuation fees. Because of this, it isn’t particularly common for people to refinance in their first 12 months – though it is possible.
Other common triggers for people to consider refinancing, are major changes in life. Marriage, death in the family, birth of children or a change in career, often lead individuals to seek alternate refinancing options.
It’s a good idea to conduct a health check on your home loan from time-to-time, in order to ensure you have a competitive interest rate, and are getting the most out of your features.
Now may be the perfect time to consider refinancing, and set your strategy to achieve your financial goals. Please reach out and speak to our Debt Analysis Team (DAT) if you would like to review your current loan, and explore your options further.