The lowdown on refinancing in the current climate

With interest rates lower than we have ever seen before and lenders scrambling for our business, now is a great time to consider refinancing your mortgage if you’re not getting the best deal from your lender. However, given these times of uncertainty, there are a few important things you need to consider before you start shopping around.

1. There are some VERY low rates on offer & the savings can be significant.

The Reserve Bank of Australia has slashed the official cash rate 6 times since June 2019. This has driven lenders’ costs down allowing them to make their rates cheaper. There were many reasons for the cuts but the economic fallout resulting from COVID-19 has been one of the greatest drivers over the past 12 months. It wasn’t long ago that rates starting with a 3 seemed too good to be true. Now there are offers as low as 1.99% despite the average still standing at 3.3% (according to borrower data from the Finder app). 

To put the difference into perspective, on a loan of $400,000, the monthly repayment over a 30-year term at 3.3% is $1,172. If you were to switch to a 4-year fixed rate of 1.99% (which some lenders are offering), your monthly repayments would be reduced to $1, 477. That’s a saving of $3,300 a year.

2. Some lenders are only offering their best rates to NEW customers.

You’d think loyalty would be rewarded, wouldn’t you? However, unfortunately some of these very low rate offers are only being made available to new customers and not passed on to existing customers in order to attract new business. So, what can you do? Start by checking your current rate and then heading to your lender’s website to see what rates they are offering. If they’re offering a lower rate for the same type of loan as you have, call them and ask them to match it. The worst they can do is say no. But you won’t know unless you ask.

3. Consider switching if your lender won’t come to the party.

Shop around or go to a mortgage broker to do the research for you. It’s a competitive market at the moment with so many lenders keen to get new business, so keen in fact that some are offering other incentives like cashback offers. Look into these offers carefully as some come with a minimum loan limit and/or annual fees. Over a few years, the fees could cost you more than the cash incentive or the benefit of the extra low interest rate. Some lenders are also offering discounted variable rates with very low rates for an initial period only before going up.

4. COVID-19 is slowing down the application process.

Like so many companies, a number of financial institutions also have staff still working from home. This is slowing down the application process, so be prepared to wait a bit longer than normal for a decision.

5. Lenders are particularly cautious right now.

While lenders want your business, they are more cautious right now due to the uncertainty of the long-term impacts of COVID-19. The chance of borrowers striking problems and defaulting is higher now than it was before the pandemic, which is why they are taking extra time to carefully scrutinise every applicant’s financial situation. Consider the follow when applying:

  • Your employment situation – a lender may be more hesitant if you work in a currently high-risk industry like tourism or if the company you work for is still claiming JobKeeper on your behalf.
  • Your equity – ensure you have at least 20% equity in the property if you are looking at refinancing. If it’s less, the lender will require you to pay Lender’s Mortgage Insurance causing the costs to likely outweigh any savings from a lower rate.
  • Your income & expenditure – take a close look at your income and spending habits before you refinance as the new lender will be looking closely at these.

Post by ShelMarkblog 12 Feb 2021 0