We pride ourselves on always getting our clients the best possible deal for their situation at the time that we assist them with their loans.
However the mortgage market is constantly changing, with lenders locked in a endless battle to win new business and increase their market share.
Rate cuts, fee reductions, cash incentives, improved lending criteria, limited time offers – the banks will do whatever it takes to get one up on their competitors.
As a result it is virtually impossible to have the best loan or be on the best rate all the time!
This is why we recommended you review your finances at least every 3 years.
Before refinancing always consider your circumstances over the next few years. You should ask yourself whether flexibility, a lower rate, lower fees or debt consolidation is the goal.
There can be many reasons to refinance – a job change influencing your financial situation, your current mortgage rate is too high, you want to raise funds to buy an investment property or to renovate your existing house.
Even if you don’t have any specific reason in mind, it’s always worth weighing up the viability of refinancing from time to time.
Around every three years is a good time to fully reassess your home and investment loans and compare them to other products in the market.
By doing this, you can determine if a change will provide you with the flexibility you require now, or if the fees and charges are high compared to other products.
This time-frame also allows you to manage your interest rate risk and avoid costly break fees.
If you have locked in all or some of your loans over a three-year period, it would be a good idea to start looking at least a few months prior to its expiry.
Finishing off the three-year period will also ensure you minimise the ‘get out fee’ charged by most banks.
Many borrowers have been left frustrated after their lender reduced interest rates by less than what was set by the Reserve Bank of Australia, while other lenders passed on the full rate reduction or even more in some cases.
Even a slight increase in your interest rate can make a major difference over a long-term loan.
Others who are looking to refinance might just want to fix their repayment, especially if they sense rates might bottom out. As is the case recently, there has been a flurry of fixed rate cuts by the major lenders.
Another reason to refinance your home loan might be to consolidate your debts into one monthly repayment. If you have multiple debts from various sources or institutions such as a home loan, personal loan, credit card or other high interest loans, and you’re having trouble paying these off, then it could make sense to roll these debts together with your home loan. The main advantage here is that your home loan rate is usually significantly lower.
Some credit cards have rates as high as 20% or more, which is more than triple what you’d find with a home loan rate.
The key is to make sure you don’t lower your repayments once you’ve consolidated. The same is true if you manage to get a lower interest rate on your home loan – the savings that this provides should be used to pay the loan off faster, so don’t be tempted to use this as spending cash.
We wrote a post on debt management here which goes into the benefit of debt consolidation in much more detail.
Some borrowers also want to refinance to use the equity in their home to pay for home improvements or for other reasons. Keep in mind, while allowing you to expand your property portfolio or house value, it will also greatly increase your loan term.
Also make sure when you refinance that you plan to stay put for at least 3 years or more as moving house shortly after refinancing could mean you lose some or all of your cost savings.
If you need any other details or wish to discuss your situation please feel free to contact us any time.
Sam & Matt
Adelaide Mortgage Broker +plus more…
P.S. To review our current best fixed and variable loan rates click here