Is Now a Good Time to Refinance My Home?
Are you thinking about refinancing? As interest rates rise, so do the hurdles that you need to clear. Here is why you might want to look at refinancing soon to avoid missing out.
When was the last time that you refinanced? If the answer is never or you can’t remember, then there is a good chance you are paying a higher interest rate than you could be due to the “loyalty tax”.
The banks don’t think you are paying attention and as such only offer their lowest rates to new customers in a bid to win them over, as proven by the RBA.
A recent RateCity analysis found that customers who stay loyal to their bank could be hit with an extra $5,101 in interest over the next three years alone on their personal loan, based on a $500,00 loan taken out with CBA in 2019. For a $750,000 loan that would be an extra $7,652 in interest and for a $1 million loan that is an extra $10,202 in interest.
This is a big reason why owner-occupier refinancing across the country rose 9.7% in June to a new record high of $12.7 bullion, according to the Australian Bureau of Statistics.
Why is Refinancing Now So Important?
When you refinance, the new lender must assess something called “home loan serviceability.” It is the ability to meet your home loan repayments at an interest rate that is at least 3% above the rate you are being offered.
The big four banks are tipping the RBA’s official cash rate to increase from 1.85% to anywhere between 2.60% (Commbank forecast) to 3.35% (ANZ forecast) by November. That means that as interest rates go up, so too will the hurdle you will need to clear for home loan serviceability when refinancing.
So… the sooner that you refinance, the lower hurdle you will need to clear to ensure you are not stuck with your current rate and lender.
Frequently Asked Questions
What is the "Loyalty Tax" and how does it affect me?
The "loyalty tax" refers to the higher interest rates that banks charge existing customers compared to new ones. If you haven't refinanced recently, you could be paying thousands of extra dollars in interest over the next few years.
Why is it important to consider refinancing now?
As interest rates rise, the requirements for home loan serviceability also increase. Refinancing sooner could mean you'll face a lower hurdle for home loan serviceability, allowing you to secure a better rate.
How do rising interest rates affect home loan serviceability?
Home loan serviceability is assessed based on your ability to meet repayments at an interest rate that is at least 3% above the rate you are being offered. As interest rates rise, this "hurdle" also goes up, making it more challenging to refinance.
What can I do if I don't want to switch lenders?
You can request your current lender to review your rate. Indicating that you are prepared to refinance if they do not offer a better rate can sometimes lead to a more favorable outcome.
How can Zippy Financial assist me with refinancing?
Zippy Financial can help you explore your refinancing options and guide you through the process. They can also assist in negotiating with your current lender for a better rate.
What are the financial implications of not refinancing?
According to a recent RateCity analysis, customers who stay loyal to their bank could be hit with an extra $5,101 in interest over the next three years alone, based on a $500,000 loan taken out with CBA in 2019.
How Do You Explore Your Refinancing Options?
Simply get in touch today and we will help you get the ball rolling. And even if you don’t want to refinance with another lender, there is always the option of asking your current lender to review your rate, indicating that you are prepared to refinance if they do not come to the table. After all, loyalty should be a two-way street!
If you’d like to find out more about what options are available to you, get in touch. We want to help you through the period ahead as much as possible!
Phone: 1300 855 022
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Connect with Louisa on Linkedin.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial. r-less normal distribution of letters. making it look like readable English.
