Mortgage

Should I Refinance My Mortgage? A Beginner’s Guide

For the first time since 2016, the Reserve Bank of Australia (RBA) has cut interest rates. The interest rate was held at 1.50 percent, but in June 2019, it was cut to 1.25 percent, a record low. The primary motives behind the rate cut are said to be to promote an increase in employment, and to reach the set consumer price inflation target of two to three percent. Lower interest rates coupled with other economic changes have proven to be beneficial, resulting in a 1.7 percent gain in national housing values after values had previously declined by 8.4 percent. Continuous increases in national housing values could improve the economy and could potentially boost the confidence of homeowners. Since then, the interest rates have been cut again. This October, the interest rate has been cut to 0.75 percent; this is the first time in history that the rate has been under one percent. Not all banks in Australia have cut their rates. Individuals who bank with institutions that have not passed cuts in the interest rate may now be seeking alternative options for a better deal on their home loan. One financial option is to refinance their mortgage.

The ongoing cuts in the interest rate and other economic changes could have some individuals wondering how to refinance home loan options. To start, individuals should be aware of the cost of their current home loan, whether their interest rate is fixed or not. Additionally, they should know how much they pay if they are required to pay any annual or ongoing fees. If they do not already know how much they pay, the interest rate can be found on a home loan statement, through online banking if the lender offers it, on the lender’s website, or by calling the lender on the phone.

Most lenders charge borrowers a fee for exiting their home loan, especially if the borrower is in a fixed rate home loan and intends to leave the loan before the term expires. Borrowers should contact lenders and ask how much it would cost to leave their home loan. When deciding to leave their current home loan, borrowers should have an idea of other home loan deals. This way, they can announce to their lender that they plan to refinance their home loan with a competing lender, and initiate negotiations with their current lender, if necessary. Borrowers should be aware that lenders would be more likely to negotiate with them if they hold up their end of the deal and make repayments on time.

Borrowers can compare the interest rates at other banks and do their own research to determine if other loans have features they want. People can consult savings.com.au to compare interest rates for different lenders, to see which banks have cut interest rates, and for updated savings information. Moving to a new lender to refinance a home loan may require borrowers to pay various fees up front, such as an application fee or a settlement fee. An additional factor that can influence a decision about switching lenders is the length of the new loan. 

The advantages and disadvantages of moving to a new lender to refinance a home loan should be weighed. Borrowers should consider whether or not it would save them money to switch lenders. Borrowers who are banking with institutions that did not implement the interest rate cuts are not as likely to save money as borrowers who are banking with institutions that did. For this reason, refinancing a home loan with a different lender is beneficial.