Chances are that you do not.
Cash rates have changed since your current loan settled. In fact, the RBA increased them thirteen times since May 2022. Consequently, what your lender is charging has changed too! Perhaps, you are paying more than the best available rates currently in the market. Could you be paying less? A loan with a lower interest rate or less fees can be the simplest way to reduce your repayments. It means you can unlock more spending money or pay off your home loan sooner.
The good news however is that the rates are moving up in a dynamic and competitive mortgage market. Lenders are always competing for market share, introducing new products, and constantly tweaking their lending policies.
Whilst the focus is usually on interest rates, life is not static and your situation has most likely changed since you settled your current loan. Your income may have changed, and your expenses and commitments probably have too. Your household is probably not the same either.
Is refinancing a clever idea for you?
Chances are that the answer is an emphatic yes!
Your financial goals and loan requirements are unlikely to still be the same as when you last reviewed your financial situations and gave thought to your objectives. Even though most loans are long-term arrangements stretching as long as 30 years, borrowers in Australia refinance their home loan on average every 4-5 years. Refinancing is a chance to reset your loan to match your changed circumstances and/or to take advantage of the competitive forces at play to save money.
Reviewing your home loan every year is a good money habit. Understanding what is available in the market means you are well informed and can decide for yourself if your current loan arrangement is the best fit for your circumstances.
Is using a broker the smart way to go?
Using the services of a mortgage broker makes so much sense, up to 70% of mortgages in Australia are done with the help of a mortgage broker. A broker takes care of the whole process from beginning to end, saving you the hassle.
There are hundreds of different loan products from a variety of lenders available right now. How do you know which one is the right one for you? A mortgage broker will help you make that decision as we stay up to date and know the loan market inside out. Your broker will shop around for a loan that is right for you, match you with the right lender and negotiate on your behalf. It is not just about the rate either, with a mortgage broker ensuring all features of a loan are considered to maximise flexibility and fit. Of course, each lender will have its own terms and conditions, which a broker will consider when recommending a solution. And the best part is that using a mortgage broker is usually free to you as brokers get paid by the lender of your choice at settlement.
What home loan type is right for you?
The first thing a broker will do is review your current loan and circumstances, and find out what your needs and goals are, and how they may have changed since you took out your loan. This will help them identify any potential savings from rates, fees, or features; and re-evaluate your borrowing potential. With several different loan structures on the market, the new loan recommended may be a different type to your current one. There are many subtle differences between each lender’s loans, but here is the basic rundown of the type of loans you could consider:
- Variable Rate Loans: Your interest rate will go up and down depending on the official cash rate, market conditions, and each individual lender’s decisioning. Your payment goes down when rates go down and vice versa, your payments go up when rates go up.
- Fixed Rate Loans: Your interest rate is fixed for 1 to 5 years. Even if rates change, your repayments stay the same. This would help you manage your household budget by knowing exactly what you must pay each week, fortnight, or month.
- Split Rate Loans: Part of your interest rate would be variable, and part would be fixed. This would let you enjoy the benefits of an interest rate drop but also protect you from being affected fully by an interest rate rise.
- Interest Only: You only pay the interest on your loan up to 5 years but do not repay the principal loan amount. Your repayments are less but you still have the same level of debt at the end of the interest only period.
- Line of Credit: You can pay into and withdraw from this account, but you must keep up with the required repayments. You can have your income paid into this account to help pay off the mortgage sooner, but interest rates are generally higher.
Obviously, a low rate is important. But besides finding the best applicable rate, it’s important to consider other features that can also save you money overall. For example, an offset account is a transaction account linked to an eligible home or investment loan. The benefit of an offset account is that the money you have in this account can be used to “offset” the amount you owe on your home loan, and you will only be charged interest on the difference. You can deposit your salary and savings into the account and the balance is then offset against the amount owing on your home loan, saving you interest costs.
What are the costs of refinancing?
With the costs of ending one loan and moving to another, our Lending Advisers only recommend refinancing only when they are confident that it can improve your financial position.
It is important to be aware of both the benefits and costs when weighing up a refinancing . Here are some of the more common fees and costs that some lenders may charge you to refinance:
- Discharge Fee: a lender may charge you a termination fee (also called an exit fee) to end their loan contract.
- Break Costs: if you have a fixed rate loan you could be charged a break cost.
- Application Fee: This fee is often waived in a packaged loan.
- Settlement Fee: A fee charged by the incoming lender to settle the loan.
There are also government charges that may apply such as a registration fee that is charged to register a new mortgage. This amount varies from state to state.
Not all fees apply and our lending team can advise you on what costs apply when assessing your situation.
Talk to us about your options.
If you want to refinance for a better deal and want to make the process as smooth and stress-free as possible, consider working with the experienced lending team at Prosperity Lending Advisers. We can offer you a range of mortgage options and help you find the one that best fits your needs and financial situation. Our advisers have access to a panel of over seventy lenders and 100s of products across residential finance, commercial finance, business finance and asset finance.
To discuss your lending options, contact our Lending Team, Senior Lending Adviser Hani Omran on 0447 014 711 or homran@posperity.com.au and Senior Lending Adviser Melanie Peter on 0456 992 006 or mpeters@prosperity.com.au.