The Reserve Bank recently slashed interest rates to 0.1 per cent from the previous record low of 0.25 per cent. It is also expected that the interest rates will not rise in the next three years, making it cheaper than ever before to borrow money.
Joe and Susan, who bought their house in Sydney in 2010, are looking forward to some savings on their mortgage, based on the recently announced rate cut. Over the years, the couple has had two children and refinanced their mortgage once. They are currently paying a variable interest rate of 3.0 per cent but plan to switch loans if their lender does not pass on the recently announced cut.
Joe and Susan are not the only ones planning to refinance their home loan to take advantage of the historically low-interest rates. The Australian reports that nearly one in 10 Australian homeowners have refinanced their existing mortgages to take advantage of the record low-interest rate environment and 500,000 home loans, or 8 per cent of all mortgages, have been refinanced in the past year.
With unemployment levels at an all-time high, many couples like Joe and Susan are facing income cuts. In such a scenario, even a little bit of additional savings through a low-rate mortgage can make a significant difference over time.
At present, several lenders, including some from the big four, are offering fixed-rate mortgages at interest rates lower than 2 per cent per annum. While many lenders are yet to pass on the benefit to variable rate mortgage customers and those who are already on a fixed rate don’t directly benefit from reduced rates, those looking for new financing can find mortgage deals with some of the lowest interest rates in history. For others, it is a matter of finding the right deal to switch their home loan and save some money in these difficult times.
For example, a marginal interest rate cut of 0.15 per cent on your existing mortgage of $400,000 at 3.00 per cent per annum for 25 years can save you around $51 each month. Over the full term, you will save more than $15,000. And, if your new mortgage interest rate is 2 per cent per annum, your monthly repayment will reduce by approximately $200, saving you more than $60,000 over the life of the loan.
Is it time to refinance your mortgage?
Typically, homeowners refinance their home loan to get a lower interest rate or unlock the equity they have built in their homes. Experts also consider it good practice to revisit your home loan every couple of years to see how your interest rate stacks up against the market average. By reviewing your mortgage regularly, you can also keep a tab on the additional features you no longer require and might be paying for, to reduce your monthly repayments.
Currently, home loan interest rates are significantly lower compared to what we have seen in the past. Therefore, this could be an excellent time to revisit your mortgage and check whether changing home loans or refinancing is beneficial for you. Here are some tips to get you started.
If you have a fixed rate home loan:
A fixed-rate home loan means you pay interest on your home loan at the same rate for a specified period irrespective of how the market swings. Additionally, you might be required to pay a break fee if you wish to refinance your fixed-rate loan during the fixed period. Therefore, it makes sense to crunch the numbers before deciding to switch fixed-rate loans. You may consider speaking with a mortgage broker to understand what it is going to cost you to replace your existing loan with a lower rate mortgage. If you can recoup the costs in a couple of years and benefit from lower repayments, it might be a good idea to refinance now.
If you have a variable rate home loan:
Most lenders have not yet reduced their variable rates, but they might do so in the future after the recent rate cut by the RBA. Notwithstanding, you can always compare home loans online to check what’s available in the market. You may consider fixing your home loan if you wish to have the certainty of making fixed repayments for the next few years. It is perhaps easier for some people to plan their finances when they know exactly how much they need to pay for their home loan repayments each month, especially during these times of extreme uncertainty.
Top reasons to refinance your home loan
There are many reasons why refinancing your loan can help you manage your finances better. For example, shifting to a lower interest will free up additional money each month that you can use for other purposes. Or you can continue paying the same amount each month on your new loan with a lower interest rate to pay down your mortgage faster. You can even use a low-interest rate mortgage to consolidate high credit card and/or household debt.
If you are financially stable and you have paid off some part of your mortgage, you may also refinance to cash out your equity, up to 80 per cent of your property’s value, and use it as a deposit for an investment property. In the ongoing environment, the chances are that you will not only find properties to be more reasonably priced but also secure a better deal on your investment loan. An expert investment broker can help by suggesting tailored home loan deals from lenders based on your financial history and goals. A broker can also help you in planning your investment portfolio so that you may delay hitting the financial brick wall.
Wondering where to start?
At Wealthy You, we make it simpler to refinance your home. We prevent you from jumping through unnecessary hoops to access the financial solutions you need to achieve your goals. Our flexible and affordable financing options allow you to access up to 85% of the equity in your home to meet your financial needs.
If you are considering refinancing your mortgage in these challenging times, visit our refinancing page to learn more about our service and pre-qualify your loan, or call us directly (02) 7900-3288 to have a confidential discussion regarding your home loan. We will do our best to help you take advantage of the ongoing low-interest rates through our prompt and meticulous service.