December 5, 2016
With the latest Australian Bureau of Statistics figures showing that refinancing now accounts for 33% of all new housing finance commitments*, borrowers need to ensure they do not rush into anything before they take the time to look around, so they can capitalise for the long term.
Peter Andronicos, from Refinancing.com.au, says there is little doubt borrowers are now in the box seat when it comes to taking charge of their finances, compared to even ten years ago, but the refinancing process needs to be carefully considered from all angles to really reap the full financial benefit.
He says: People need to understand there are two key reasons refinancing has become the new black. Firstly, the current historically low interest rate environment has prompted many borrowers to want to look around in a bid to save money and this means lender loyalty is now a diminishing commodity as a more educated and empowered consumer decides to exercise their right to choose.
Added to that is with many of the previous fees attached to refinancing now no longer an impediment, there is little to hold people back from doing their own research and making the move to a better loan more appropriate to their current circumstances and future plans, he explains.
Before you start the refinancing process, ask yourself these four questions:
1. Do you know if your current interest rate is still competitive within the lending environment?
With so many official rate cuts over the last year, and not every lender passing the full cut onto borrowers, many are unaware of what exactly their current rate is and where it sits compared to other similar loans from other lenders. Look at your most recent loan statement from your lender to find out where your rate is sitting.
2. Will your current loan structure adapt to your plans for the next 5-10 years?
If your loan is more than two years old, it’s a good time to review the features to determine whether they are still the most relevant for what you want to financially achieve in the next phase of your life. Consider whether you should stay with a fixed or variable rate or keep the same loan features.
3. Have your personal or professional needs and circumstances recently changed?
Starting a new job, losing your job, getting married, getting divorced, having children, having an illness or losing your partner can all impact our ability to service our loan. Look at your current loan and determine if it’s the most effective structure to adapt to your new situation.
4. Are you comfortable with the fees your current lender charges on your mortgage?
By weighing up the benefits, costs and interest savings on different loans it allows you to get a more accurate picture of how fees can impact a loan. Ongoing fees can erode the other benefits of a loan. Once you find out what you are really paying for, it can make a difference to how your loan stacks up against the rest.
If the responses to these questions present some clear and compelling reasons to consider refinancing, the borrower needs to start looking at their options, and that needs to be carefully managed to provide a picture of what is currently available to them.
So they need to be smart about where they turn to for information, says Andronicos.
Refinancing.com.au is a purpose built solution which simplifies the whole process through a web-based platform showing borrowers where they are sitting with their current loan, against other loans relevant to their circumstances. This then delivers the information they need to switch and save if they wish to, through the added assistance of qualified loan consultants.
Although there has been a three percent drop in the Reserve Bank cash rate since 2011, consumers have had inconsistent rate reductions during that time. As a result, there would be many borrowers unaware of their current rate, so this allows them to see if there is a more competitive offer, explains Andronicos.
Andronicos says refinancing activity is set to be a driving force in the mortgage marketplace as Australians look for ways to create efficiencies and streamline their financial arrangements.
Genuine choice has now been returned to the consumer and that is empowering, he concludes.
* Source: ABS Table 13b. Housing Finance Commitments (Aug 2016).
(NB: Refinancing calculated as percentage of all housing finance)
Borrower A inputs their current loan details into the refinancing.com.au engine, with the view to qualifying for a better deal:
|Borrower type||Property value||Loan amount||Current interest rate||Current term|
Within minutes a tailored report is emailed revealing that Borrower A may qualify for a new home loan deal with Lender B* – with a new annual percentage rate of 3.59% (comparison rate 3.60%).
This can reduce their current monthly payment of $2779 by $252 per month (new payment $2,527), resulting in a potential saving of just over $75,000 over the life of the loan.
* Bank of Sydney
Terms & Conditions:
These results are based on the information provided and do not constitute financial advice.
Terms and conditions, fees and charges and normal lending criteria apply. Loan Repayments are an estimate only and exclude fees. Comparison rate is based on a loan of $150,000 over 25 years.
WARNING: This comparison rate is true only for the example or examples given and may not include all fees and charges. Different terms, fees and other loan amounts may result in a different comparison rate.
Approximate Savings is the difference between the repayment of the existing loan and the new advertised interest rate, and is based on the loan term stated. It assumes interest rates do not change during this period, and it does not include ongoing fees.
Discharge fees, lenders mortgage insurance, and break costs are not considered, and need to be obtained from your lender. This does not constitute a quote or pre-approval.
(Figures based on information at 1 November 2016)
Written by Refinancing.com.au
Refinancing.com.au is an end-to-end service that helps people refinance their home loan. We empower you to search for your home loan, and choose the process that suits you.
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