5 signs it’s time to refinance your mortgage

There are significant benefits to refinancing a home loan, whether a borrower is looking to reduce interest rates, ditch ongoing fees or access equity for renovations or a holiday.

And with the Reserve Bank of Australia Governor, Philip Lowe, stating the central bank was “highly unlikely” to follow the lead of countries that have taken cash rates below zero, Australia may currently be experiencing as close to rock bottom interest rates as it gets.

The current low interest rate environment has created a perfect storm of home loan benefits for refinancers, as the competition heats up for new homeowner customers. While refinancing may come with some upfront costs and potential risks, it’s still worth exploring whether switching a mortgage could save a borrower big in the short or long term.

Here are 5 signs that it may be time to refinance your mortgage.

1. You have FOMO

There’s been a lot of discourse surrounding the booming property market in Australia, with many first home buyers experiencing a ‘fear of missing out’ (FOMO) and rushing to get a foot on the property ladder. And the same can be said of existing homeowners currently watching competitor lenders offer lower and lower interest rates.

According to RBA housing lending rates, the current average owner-occupier variable interest rate sits at 3.12 per cent. Comparatively, Reduce Home Loans is offering refinancers an owner-occupier variable rate of 1.77 per cent. This is a difference of 1.35 percentage points, and, on a $400,000, 30-year home loan, amounts to a monthly repayment saving of $279 by refinancing (excluding fees).

If you’re with a big four bank and still paying an interest rate above 2 or 3 per cent, it may be worth following that feeling of FOMO and seeing what options are out there for refinancing.

2. Your bank isn’t cutting rates

Following the last RBA cash rate cut in November 2020, not every lender cut existing customer interest rates. In fact, lenders were more likely to slash fixed rates for new customers than existing variable rates in November, despite variable interest rates being designed to follow market fluctuations.

Lenders may be more likely to offer lower rates to new customers instead of existing, as a means to get them over the line on to their books. Another sign that homeowners may want to consider refinancing their mortgage is that their current lender is not passing on these cash rate savings to them.

Hop online and take a look at what interest rate you’re currently paying and what your lender is offering new customers. If your bank is unwilling to lower your rate to match this (or come close), it may be worth considering refinancing.

3. You’re tired of paying high fees

It’s not just interest rates that can sting home loan customers over the life of their loan. There are a range of upfront and ongoing fees that homeowners are charged for the privilege of having a mortgage. And even with the savings a low rate loan may provide, if a borrower is still paying through the nose in annual fees, they may not be saving as much as they think.

According to comparison site, Canstar, the average “annualised ongoing home loan fees” sit at $93 per year for owner occupiers with a variable home loan rate, and $104 per year for investors on a variable rate loan. Over a 30-year mortgage, this amounts to around $3,000 just in ongoing fees.

However, there are a range of home loan providers that don’t charge these pesky ongoing fees. Reduce Home Loans does not charge an annual fee for its customers refinancing to its Super Saver 60 home loan, for example. If you’re still paying higher than average home loan fees, it may be worth shopping around for low or no fee options.

And if you’re worried about the cost of refinancing, there are a range of cashback deals on offer at the moment. Reduce Home Loans is offering between $1000-$5000 in cashback for refinancers, depending on the size of the mortgage. Cashback deals may help to pay for these upfront costs, or can be a bonus perk in the process of switching lenders.

4. You want to add features to your mortgage

Oftentimes first time buyers will be approved for more basic home loan packages. Then, a few years into adding equity to a mortgage, these homeowners may find their financial situation has improved (better jobs, higher credit score etc.) and they’re wondering if they would now apply for a better home loan.

If this sounds familiar and you’re lamenting not having access to helpful features, it may be worth considering refinancing. Homeowners may be able to refinance to add helpful features such as:
● Offset accounts
● Ability to make extra repayments
● Split rates
● Redraw facility

All of these features can add value to your mortgage and help to unlock its true potential.

5. You need to access equity

A homeowner has been paying off their mortgage for a number of years and has built up a considerable amount of equity. Now, they’ve realised they want to access this equity, whether to pay for home renovations, a wedding or just go on a holiday.

It may be time to consider refinancing if you’ve been paying off your mortgage for a while and have decided you need to access some of these funds.

How refinancing allows you to access equity is simple. Equity (the part of your property value you’ve paid off compared to your home loan) can be used as security to borrow more money. This is similar to how you may have used the property as security for the original loan, the equity can be used to secure a borrower taking out a larger loan when they refinance, with funds provided as a lump sum or line of credit.

However, keep in mind that this option involves borrowing more money and ultimately will mean a borrower pays more in interest over time. Even if you refinance to a lower home loan rate. As long as you can budget for these potentially higher mortgage repayments, the need to access equity may be a worthwhile sign it’s time to refinance.

(29)    For the Rate Cutter Variable where the borrower pays $1170 upfront fees then a corresponding loyalty discount of 0.10% p.a. off the Rate Cutter Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(27)    For the Investor Rate Slasher Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Slasher Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(26)    For the Low Rider Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(25)    For the Economizer Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Economizer Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(24)    For the Super Saver Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.10% p.a. off the Super Saver Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(23)    For the Super Saver Variable where the borrower pays an upfront fee of $1170 then a corresponding loyalty discount of 0.15% p.a. off the Super Saver Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(22)    For the Economizer Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.11% p.a. off the Economizer Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(21)    For the Investor Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(18)    For the Home Owners Dream 1 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(20)    For the Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(14)   For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(12)   For the Investor Rate Lovers Interest Only where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.07% p.a. off the Investor Rate Lovers Interest Only rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(11)   For the Wealth Maximizer 3 year fixed Principal & Interest where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(10)    For the Wealth Maximizer 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(9)    For the Home Owners Dream 3 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(8)    For the Home Owners Dream 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(7)    For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(6)    For the Investor Rate Buster Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Investor Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(5)    For the Rate Buster Variable where the borrower pays an upfront fee of $150 then a corresponding loyalty discount of 0.05% p.a. off the Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(4)For the Rate Slasher Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.08% p.a. off the Rate Slasher Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(3) For the Investor Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Lovers Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(2)For the Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Rate Lovers Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(1) For the Low Rider Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(28) For the Rate Crusher 1 Year Fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.05% p.a. off the Rate Crusher reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(19) For the 1 Year Fixed Wealth Maximizer where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the 1 Year Fixed Wealth Maximizer reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.