If all this talk of rising rates has you worried you’re paying too much yourself, it’s time to do something about it… now.
If you have never refinanced your loan, or can’t quite remember the last time you did, there’s a very good chance you’re paying a higher interest rate than you should be.
Here’s why….
Lenders don’t think you’re paying attention and let’s face it, many homeowners aren’t. As such, lenders have historically offered their lowest rates to new-to-lender borrowers in an effort to attract new business. Knowing their existing borrowers are unlikely to even notice, it’s something lenders have continued to get away with.
Paying a higher interest rate as an existing borrower is sometimes referred to as a “loyalty tax.” And whilst the phenomenon was examined by the RBA a few years ago here, we see it play out every day. If you have a variable rate loan – and haven’t reviewed it for a few years now – it’s likely you’re paying this loyalty tax yourself.
The thing is, with rising rates, your decision not to review your loans regularly is going to cost you. Homeowners across the country are beginning to understand the effect of their inaction and are starting to do something about it. According to the ABS, owner-occupier refinances rose 9.7% in June, to a new record high of $12.7 billion. We expect this trend only to continue, as homeowners feel the pinch of higher loan repayments.
Whilst it’s important to start saving interest where you can as soon as you can, there are other factors at play here. It’s important to review your refinance options now. Because as time passes, your refinance options may become limited.
Why is it so important to explore options now?
Well, because when you refinance, the new lender will need to assess your “loan serviceability”.
This refers to your ability to meet your home loan repayments. Whilst each lender has their own way of determining a borrower’s capacity to repay a home loan, the calculations are performed at an interest rate that’s at least 3% above the current rate.
Whilst you can clearly meet the repayments on your current loan from a cash flow perspective, to re-qualify for the loan you already have, you need to demonstrate you can meet monthly repayments should they be 3% higher than what they currently are.
With further rates rise, this means it will become harder to demonstrate loan serviceability – from the perspective of applying for a new loan with a new lender.
So, the sooner you explore your refinance options the better. The last thing you want is to be stuck with your current rate and lender – paying more than you need to – just because you took too long to take action.
And if the idea of switching all your direct debits to a new account makes you want to scream, there are ways to save on your existing loan which don’t involve changing absolutely everything. The new lending solution should fit how *you* currently like to manage your household finances and may not even involve switching lenders.
Take that first step and review your home loans now
So, you’ve got a home loan and want to review things, but you’re not sure where to start.
Well, that’s the easy part! You can get started by leaving us a few details here.
Alternatively, give our team a call on 02 6286 6501 and we can get the ball rolling.
