Looking to refinance?
Looking to refinance?
… a mortgage expert weighs in with some tips
Home owners considering refinancing amid the current interest rate climate will have a number of factors to consider, experts say.
This follows the news that refinancing bounced back in the month of May, increasing nationally by $1.58 billion to a total of $20.97 billion - the second highest monthly value for external refinancing on record.
"It's great to see refinancing back on the rise, hitting the second highest level in ABS records," RateCity research director Sally Tindall said.
Many home owners were becoming more aware of interest rates, including what they were paying and wanting to investigate whether a better deal was available.
"In the past when rates maybe didn't move a lot, people didn't even know what they were paying, but that's changed in current times," he said.
"A lot of people coming off fixed rates are also wanting to work out their options, because it is a fair jump from what they were paying to now."
Here are seven things home owners need to know about refinancing in the current interest rate climate.
Mortgage holders have been given a break, with the Reserve Bank holding the cash rate at their July meeting.
Options open up
Mrs Tindall said the next few months will see thousands of borrowers come off their fixed rates and continue to drive refinancing activity.
"While some people who borrowed at capacity may find themselves with limited options when they come off their fixed rate, CBA and Westpac's lowering of the stress test for select refinancers has opened up the possibility of them now being able to refinance.
"With the potential for up to three more rate hikes still to come, more banks will hopefully revisit their servicing policies for refinancers stuck in mortgage prison."
Do your research
Understanding the full terms and conditions of a loan is crucial.
"A lot of people look at refinancing, they maybe just Google the rate and think, 'that's perfect for me'," Mr Clark said.
"But it's not usually as simple as that.
"It could be a promotion, a short-term thing, it could have fees attached. So you need to speak to someone who knows what they're doing, and can help navigate the different options."
The Interest Rate is important, but it's not everything
Mr Clark said it was important to consider customer service and your points of contact.
"You can get stuck in a situation where you might have moved to a new provider, but no one is there to talk to you should you need to change repayments, or make any changes.
"Your interest rate is important, but it's not the be all, end all. You also need to consider the ongoing relationship, because it's not just a transactional thing. You are with your provider for years at least.
"So, it's important to have that ongoing relationship with someone who can assist when you need it."
Refinancing bounced back in the month of May, increasing nationally by $1.58 billion to a total of $20.97 billion - the second highest monthly value for external refinancing on record.
The best solution for you (maybe not the same as your neighbour)
Mr Clark said it was key to determine the best solution for your situation.
"For example, just because your neighbour has said they've just fixed for five years, that doesn't necessarily mean it's best for you," he said.
"Make sure your personal situation is taken into account. You may have some life changes coming up, or plans for renovations that could affect your product choice."
Build a buffer
Compare the Market's general manager for money Stephen Zeller said while the pause on rate hikes offered some relief, further savings were available to borrowers willing to switch lenders or negotiate a better rate.
"It's distressing to see so many Australians enter hardship programs, especially if more competitive rates are possible," Mr Zeller said.
"Borrowers need to consider what options might allow them to get ahead now, and build a buffer so that they're prepared for whatever else lies ahead.
"If your variable rate doesn't have a five in front you could be spending more than you need on your repayments.
"The difference between some of the advertised rates we analysed was 70 basis points.
"An owner-occupier with a $600,000 loan could save $269 per month by switching from a rate of 6.24 per cent to 5.54 per cent."
Consolidate debts
Mr Clark said consolidating some debts can be a great way to help with cash flow.
"It may not be for everybody, but it can be a way to help reduce the expenses going out the door," he said.
"And when things are getting tight, which for a lot of people they are, that can be a good cash flow saver."
New home buyers vs longer-term owners
"If you've only recently bought your home then there probably hasn't been a massive change in value, so you need to consider if there's things like lender's mortgage insurance that could be applicable," Mr Clark said of recent buyers potentially refinancing.
"If you bought your house a while ago then there's a reasonable chance that the value has increased, and you might have some equity there to tap into it to do some debt consolidation, renovations, or look at purchasing an investment property.
"If you bought a while ago, there's a good chance you have some equity in there."