February 6, 2017
If you feel like everyone is talking about refinancing their mortgage right now, you are not alone. 2016 saw a significant increase in the number of homeowners who chose to refinance. A report by JPMorgan Chase & Co. attributes much of the recent growth of the Australian mortgage market to the refinancing trend. The number of borrowers who took steps to switch their mortgage rose from 10% to 35% from 2015 to 2016. That’s a remarkable jump, and one that signals a shift in how borrowers and lenders are interacting.
People are refinancing for a number of reasons, including late 2016 rate increases by the Federal Reserve in the United States, which have triggered rate increases by some of the major banks including Westpac and NAB. Another reason is necessity. Australian home prices have been rising steadily, and in some areas, sharply, for years. This has put a heavy burden on potential homebuyers to take out huge loans in order to purchase property. Refinancing after a few years is a great way to get a lower rate and reduce repayments.
All these conditions have resulted in a perfect storm; refinancing has become a very normal part of the mortgage process for Australians. Many people already have refinanced or have plans to refinance in the near future in order to improve their home loan and enjoy more manageable repayments.
Experts, such as Will Foster, a broker with Foster Finance, are convinced that the trend will continue in 2017. The driving force behind this thinking? The rise in consumer education. Borrowers are learning more about how the market works and are seeking better options. Foster explained that he saw many borrowers last year express discontent with the terms of their original lenders. Those who were no longer happy with what their incumbent banks were doing, were interested in alternatives that would give them a better deal. This has pushed refinancing to be one of the biggest themes in the mortgage market for 2017.
As a response, both banks and non-bank lenders are offering better deals. With refinancing being a sizable chunk of the mortgage market, in order for lenders to secure their market share, they have got to be able to attract those borrowers who have a better financial education. This has led to much more competitive refinancing options for Australian borrowers today.
A banking analyst for JPMorgan said back in March, The major banks will need to capture the refinancing tailwind by targeting the right customers through the right channels.
Australian consumers are more aware today than ever before of interest rate changes. They are more likely to respond to hikes and forecasted rate increases with refinancing. This is partially because, for some homeowners, higher rates could make paying those monthly mortgage repayments a challenge, especially for borrowers who have already stretched their financial capabilities with a large mortgage.
If you are planning on refinancing your mortgage this year, keep in mind that you may be able to get a better deal if you shop around. Compare a variety of lenders to see what rates and features you may be able to get when you refinance. It isn’t just the smaller lenders that are becoming more competitive. The larger banks, as well as the secondary brands of some of the major banks, may be repricing in 2017.
As many lenders are responding to this shift in consumer awareness, you also have the option of asking your current bank to improve their offer. Often, refinancing with the same lender can save you money on closing costs. They may be willing to improve their rates with you in order to keep you as a borrower.
Written by Refinancing.com.au
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