Whilst the Reserve Bank of Australian (RBA) left rates on hold earlier this month, homeowners haven’t let that stop them from securing better rates. Increasing numbers of borrowers are taking action themselves to secure a lower rate by refinancing.
Are you thinking of refinancing too?
As we talked about here, February’s 0.25 rate cut provided some much-welcome relief to home owners across the country. The rate drop boosted consumer sentiment around household finances, which is unsurprising given this was the first rate cut we’ve seen in 4 years.
Despite the rate relief, Australian homeowners are still on the hunt for more rate reductions. And they’re turning to refinances as a way to reduce mortgage stress, improve their monthly cash flow, and access equity for renovations or investments.
So what exactly is a refinance, how does it work, and is it worth the effort?
Let’s break it down here.
What is a refinance?
Refinancing is when you switch your existing home loan over to a new one – either with your existing lender, or a new lender completely. The goal is to get a better deal, reduce your repayments, access equity, or change your loan structure to suit your current financial goals.
What are the benefits of refinancing?
Lower Interest Rates
This is possibly the biggest reason homeowners look to refinance. Because even a small reduction in the interest rate can save you thousands over the life of your loan.
Reduce Monthly Repayments
A lower interest rate or extending your loan term can ease monthly cash flow pressures and take some of the stress out of managing the household budget.
Access Equity built up in your home
If your property has grown in value, a refinance can help you tap into this equity for renovations, investments, or other large expenses.
Switch to a Loan Structure that best suits you now
You can move from a fixed rate to variable rate (or vice versa), or choose a loan with features that suit your current financial needs – like an offset account for example. Your needs in a loan can change over time and you may have outgrown the features of the loan you initially applied for.
Consolidate Debt
Sometimes you can roll higher-interest debts (like credit cards or personal loans) into your mortgage. Whilst there can be longer-term implications with this strategy, it can help to manage your monthly cashflow commitments if things are getting a little tight.
What are the downsides to refinancing?
Fees and Costs
Whilst there are often costs associated with refinancing (exit fees on your older loan for example), we account for all of these in the comparison – so you can understand the true benefit of a refinance. If the costs outweigh the interest saving benefits, then it makes no sense to refinance.
Time/Paperwork
We understand this can be a bit of a road block, because it feels like you have to provide a lot of information.
We can promise you though that if you ask for our help with a refinance, it’s going to be a much quicker/simpler process than dealing directly with a lender.
Is Refinancing Worth It?
Yes!
If you’re on a variable rate that hasn’t been reviewed in the last 12–24 months, chances are you can do better.
The RBA has made several rate increases in recent years. Given that many lenders don’t pass on the full discounts available to their existing borrowers, it’s definitely worth seeing if you can do better.
Refinancing can be a smart move if:
- Your interest rates seems high
- You’ve built up significant equity in your home
- Your financial situation has improved
- You want more flexible loan features
- You’re looking to invest or renovate
(But if it turns out your current home loan is still competitive, then no harm done – you should stay with your current lender for now. At least you’ll know you’re not paying more than you need to!)
Refinancing isn’t just for borrowers in financial trouble—it’s a savvy way to take control of your mortgage and make your money work harder.
If you’re keen to see if you can save money on your home loan, please reach out to our team today. We’re here to help.
