With the Reserve Bank of Australia keeping interest rates at historical lows and inflation within the RBA’s target band of between 2 and 3 percent, borrowers can look forward to lower rates for some time to come, so what does this mean for homeowners? It may be a good time to reassess your mortgage, and perhaps consider a home loan refinance to see if you can take advantage of these lower rates.
Is it time for a home loan refinance?
Borrowers today have a wide range of mortgage products and lenders to choose from, making switching loans fairly commonplace. In fact, nearly one-third of new borrowing consists of people refinancing their existing mortgages, according to the Australian Bureau of Statistics.
And with interest rates now at levels not seen since the GFC, now is a great time to consider whether your loan has the best possible structure, security and flexibility.
People switch loans for a variety of reasons. Falling interest rates and changes in financial conditions prompt borrowers to reassess their debt and how to manage it.
With so many loan options available, switching to a different type of loan can sometimes save thousands of dollars over the life of the loan.
What exactly is refinancing?
Refinancing simply means taking out a new mortgage and using some or all of the funds to pay out your old, existing loan. This could involve switching lenders, loan products or both.
There are many reasons to consider a home loan refinance:
Fixing your loan
Many borrowers take advantage of refinancing to switch from a variable to a fixed rate loan. With interest rates dropping, you could lock in a low rate for the next 1 to 10 years.
Refinancing to a fixed rate home loan or a split loan (talk to us about the advantages of split loans) can allow you the security of stable repayments for a set period.
Consolidating your debt
By combining various debts such as a car loan and credit card debt into your home loan, you can reduce the amount of interest you pay, sometimes dramatically.
Borrowing for renovations or large purchases
Borrowers who have built up equity in their home can refinance to access this equity via a larger loan. You can use this equity for expenses such as renovations, a new car or even as the deposit for an investment property.
Making the right decision
Choosing the loan with the lowest interest rate and lowest fees doesn’t guarantee you the best deal. To calculate the real savings of switching loans, you must consider exit and establishment fees.
We can help you analyse comparison rates on various mortgage types to compare costs over the life of the loan and help you decide whether a home loan refinance is right for you.