Prepare for a surprise. Those who have been enjoying historically low interest rates may soon confront the full impact of ten RBA cash rate hikes, as $141 billion in fixed-rate home loans are poised to expire and revert to substantially higher variable rates. As interest rates rise, it is crucial to assess whether refinancing your house loan is a wise financial decision.
Here are some pointers and insights from our knowledgeable brokers to help you make informed decisions in this volatile interest-rate environment.
Ascertain that the benefit outweighs the costs
Because refinancing often entails paying closing costs and other fees, it is critical to ensure that the savings from a lower interest rate and other favourable terms outweigh the expenditures.
One method for determining whether the benefit surpasses the expense is to calculate your break-even point. This is the point at which the savings from refinancing equal the refinancing fees. Use the following formula to calculate this figure:
Break-even point = Total refinancing costs / Monthly savings on repayments
Assume your total refinancing costs are $1800 and your monthly mortgage payment is reduced by $150 due to the new interest rate. Your break-even point in this situation will be 12 months (1800/150). This indicates that it would take 12 months of decreased mortgage payments to offset the refinancing costs.
After the break-even point, the true savings from refinancing are visible. If you intend to stay in your house through your break-even point, refinancing may be an excellent option because you will be able to benefit from the savings for the remainder of your mortgage term.
Refinance Multiple Properties with Cashback Incentives to a Single Lender
Some lenders provide cashback per security, refinancing numerous homes to a single lender may be a viable alternative. Aside from the potential cashback benefits, combining your loans with a single lender can result in cost savings such as lower interest rates and fewer fees. Furthermore, handling various loans can be difficult, and having them all in one location can help to streamline the process and make it easier for you.
Once again, carefully analyse the costs and benefits of this decision. To assess which option makes the most sense for your financial goals, compare the costs and benefits of refinancing each property individually versus refinancing them as a bundle.
It is crucial to remember that refinancing several homes to the same lender may necessitate a more complicated application process, as well as additional documents and verification of your income, assets, and liabilities. As a result, it is strongly advised that you deal with a knowledgeable broker or financial adviser who can guide you through the process and ensure you make the best selection.
Get personalised insights and assistance with your refinancing needs from our expert brokers. Call us at 02 7900 3288.
Choose A Long-Term Fixed Rate With Caution
Choose a long-term fixed-rate loan wisely – it’s not always the best option. Consider your personal circumstances before making a decision.
When to Avoid Taking Out a Long-Term Fixed-Rate Loan
❌ If interest rates are already high: For much of the fixed period, you may end up paying a greater interest rate than on your present variable-rate loan.
❌If you want to sell your property soon: If you end your fixed term early, you may be required to pay break expenses or exit fees.
❌ If you want unusual features: Fixed-rate loans rarely contain extra features like offset accounts or redraw facilities, which may be inconvenient if you require loan flexibility.
Where possible, consider future rate increases
With interest rates projected to rise more, it's critical to understand what analysts are saying about the rises and the cash rate situation. The RBA's decision to raise, lower, or hold the cash rate is determined by the status of the economy. Keep track of the variables that affect the RBA's monetary policy.
Expert advice and insights are great tools, but use caution and base your selections on your financial situation.
To mitigate the risk of interest-rate changes, consider a fixed-rate loan or a variable-rate loan with a rate lock feature that allows you to fix the rate for a set period of time.
By being proactive and taking steps to manage the risk of rising interest rates, you can minimise the impact on your mortgage repayments and maintain your financial stability over the long term.
Clean History and Make Timely Repayments
Most lenders will do a credit check as part of the refinance procedure. A poor credit history can make it difficult to obtain a new loan or favourable interest rates.
It is critical to pay your payments on time in order to preserve a clean credit history. Avoid overextending your credit and submitting an excessive number of credit applications. Furthermore, reviewing your credit report on a regular basis might assist in identifying any inaccuracies or fraudulent actions that may be harming your credit score.
Lenders will consider your income, expenses, employment history, and property worth in addition to your credit history when assessing how good a deal to offer you. Maintaining a consistent income and a reasonable debt-to-income ratio might help improve your loan eligibility.
Short Term and Higher Repayments if Possible
Shorter loan terms, even if they result in higher interest rates, are worth considering. A shorter term means you will pay less interest over the loan's life. You might also choose a lengthier loan period but make more instalments.
This can also assist you in repaying your debt faster and saving money on interest. Paying more than the minimum also assists you to accumulate equity in your house faster. If you choose this option, make sure to refinance to a loan that allows for extra repayments without penalty.
We'll Make Refinancing Simple!
Don't be intimidated by refinancing. Technology has made it easier than ever before. There is minimal documentation, and if you owe less than 80% of the property value, some lenders will undertake an online valuation of your property, making the process quite quick.
Allow our knowledgeable team to assist you with refinancing! We'll work closely with you to understand your specific requirements and financial objectives. Contact us immediately at 02 7900 3288 for specialised refinancing help.