With interest rates at record low levels, the number of homeowners refinancing has skyrocketed to an all-time high.
We are currently seeing more people refinance their home loans than ever before, and the latest ABS figures prove we are not imagining things. Refinanced home loans reached an all-time high of $17.2 billion in July, which was an increase of 6% from June. It is more than double the value that was refinanced exactly two years before in July 2019.
But Why are Homeowners Refinancing in Record Numbers?
The RBA cash rate is at an all-time low of 0.1% following six rate cuts in three years. In turn, competition among lenders is fierce with many offerings record-low home loan rates in a bid to win over as many customers as possible.
RateCity reports the number of variable rates under 2% on its database has jumped from 28 to 46 in just two months.
Borrowers are also looking to lock in their interest rates, following reports that lenders have started increasing the rates on 3-5 year fixed-rate loans.
Covid-19 is likely to also be a reason why there has been an increase in homeowners refinancing. With many households and businesses around the country doing it tough with lockdowns and restrictions, one simple way to reduce your monthly mortgage repayments is by refinancing.
How we help you refinance the right way
Whilst fixed-rate loans and cashback deals might look appealing at first glance, they might not always be the best fit for your situation, and what is why it helps to have a mortgage broker in your corner!
Mortgage brokers help you go through the fine print, fees and limitations that might exist with these loan options. We can also help to determine whether a fixed, variable or split loan is better suited to your needs. We are also great at negotiating with lenders!
Unfortunately, your current lender won’t automatically give you their lowest rate – you must ask them for it. And you also must make it clear that if they don’t reduce your interest rate, you are willing to find a lender that will. This can be intimidating, time-consuming and frustrating. BUT mortgage brokers do the legwork for you.
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.
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.
Mortgage rates are now the lowest they have been in decades – most people are aware of this! We have never seen them this low in my 30+ year career in the finance industry.
With the interest rates this cheap, it is possible to borrow more than you have been eligible for in the past. But why does this matter? Well… it means that you may be able to afford a bigger home or you may be able to leverage your money further for an investment property to grow wealth for your future.
This is how it works…
Borrow to Maximize Your Financial Position
When applying for a mortgage or looking to refinance your existing mortgage, most borrowers look for the cheapest interest rate, but this should not be the only factor to consider.
The other thing to consider is the loan amount. It is important to consider the total balance of borrowing they can achieve and this could help them reach their goals. I always suggest that my clients do not just focus on the interest rate when comparing various loans.
So, the question that borrowers should ask is – should we seek to apply for the maximum amount that we can borrow in the current property market so to take advantage of the low interest rates? And the answer to this question depends on the personal situation.
Here are some risks and rewards of this strategy…
The reward – if you leverage your money well to get into the market, then over time, you are likely to enjoy property price growth. If you own your home and have one or two investment properties, this could put you in a great position to create wealth for the future. The way house prices have increase, you SHOULD make money, but there are no guarantees.
The risk – is evident if you don’t have a lot of money to play with as a deposit. If you borrow 90-95% in the current market and the market cools down, you could end up with negative equity (where the house is worth less than your mortgage). Therefore, it is generally advised to buy property as a longer-term strategy to give you “time in the market”.
What is Your End Goal?
When working out how much to borrow and setting up the right loan structure, the most important thing to remember is your end goal. Is it getting the cheapest possible interest rate or accessing equity to renovate or investing in property to work towards future wealth?
Everyone has different needs, and there are risks and rewards of each strategy, and by working with a mortgage broker, you can talk through the benefits and drawbacks of different scenarios, to ensure you make the best decision to suit you.
The number of borrowers has increased immensely as they take advantage of the current lending conditions, and in turn are shopping around more and reviewing their mortgages more often. It is also a lot easier to switch lenders than before, which is boosting activity and we are finding that cash back offers are very appealing too. We have had clients use the cash back to pay off their credit card debt or use it to offset their mortgage from day one. Cash back offers up to $4,000 are available, so get in touch if you are interested and we can look into your eligibility.
If you are thinking of refinancing, are looking for a new loan or just want to see what the current market has on offer, contact us for an obligation-free chat, so we can see if we can save you money with a better deal on your mortgage.
When you’re applying for a new home loan or refinancing your existing mortgage, it makes sense to look for the cheapest possible interest rate.
But looking for the cheapest loan is not always the best strategy.
You must be thinking I’m crazy for suggesting that sometimes, you should pay a higher interest rate – but hear me out!
In my experience as a mortgage broker, I’ve learnt that far too many borrowers focus purely on the interest rate when comparing loans. They do this, rather than focusing on the total balance of borrowing they can achieve.
When Does it Pay to Pay more?
There are some situations when it makes more sense for homebuyers and property investors to opt for the loan that suits them best, rather than the loan that costs the least.
For instance, let’s say you’re refinancing. You’ve had your home loan for five years, and the value has grown from $700,000 when you bought it to $800,000 now. Your loan balance is around $560,000.
You could go with Lender A – their 2-year fixed home loan rate is very low at 2.09%. But they’re only prepared to lender to 75% of the property’s current value, which is $600,000. You can refinance and access $40,000 equity.
The problem? The purpose of refinancing is so you can renovate the kitchen and add a pool. That’s going to cost way more than $40,000.
Fortunately, you have the option of going with Lender B. Their interest rate is higher at 2.35%, but they’re willing to lender you 80% of the property’s value, which is $640,000.
This gives you access to the full $80,000 you need to renovate the kitchen and install a pool, with some money left over to recarpet the bedrooms.
Yes, you are paying a slightly higher interest rate, but in return you’re able to achieve your goals. In this instance, the renovation could potentially add far more value to the home than it cost, which will far outweigh the small amount of extra money spent on interest anyway.
Keep you Eye on the End Goal
When working out how much to borrow and setting up the right loan structure, the most important thing to consider is your end goal.
That might be getting the cheapest possible interest rate.
Or, it could be refinancing to get the most equity out, so you can use those funds on a renovation or to purchase an investment property.
Or, it might be borrowing the absolute maximum amount you can borrow, so you can leverage that money further as an investor.
Or, it could even be locking in a super-low fixed interest rate, so you have peace of mind that your repayments will be low for the next few years?
Everyone’s needs are different, which is why the right lending solution for you is so personal. There are risks and rewards of each strategy, and by working with a mortgage broker, you can talk through the benefits and drawbacks of each different scenario, so you can make the best decision to suit you.
We’re seeing many borrowers take advantage of current lending conditions; with interest rates this low, there’s never been a better time to compare your loan and make sure you’re getting the best possible deal.
In recent weeks we’ve started to see some lenders increase their fixed rate loans, which indicates they might have reached their floor. If you’re considering refinancing to a fixed-rate home loan, give us a ring for a chat, so you can see if you can save yourself some money with a better deal on your mortgage.
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.
Comparison Rate calculated on a secured loan amount of $150,000 for a term of 25 years. WARNING: This Comparison Rate is true only for the example given and may not include all fees and charges. Different terms, fees and other loan amounts might result in a different Comparison Rate. Fees and Charges Apply. Terms and Conditions are available on request.