With Australia facing so much uncertainty at the moment, you may be considering refinancing your home, but might not be sure if now is the right time.
Mortgage refinancing is certainly a hot-ticket option right now for homeowners. In fact, the latest data from the Australian Bureau of Statistics (ABS) shows that $8.9 billion worth of home loans from over 19,000 mortgage holders were refinanced between March and June 2020.
If you’re unsure whether now is the right time to refinance your home loan, here are a few reasons why you may want to consider switching.
Three reasons why you could consider refinancing your mortgage:
Reducing your biggest bill
As Australia has entered its first recession since the early ‘90s off the back of the economic fallout of the COVID-19 pandemic, keeping your debts and bills low is crucial for reducing financial stress. And your mortgage repayments are typically your biggest ongoing cost.
Hundreds of thousands of Aussie households were forced to claim hardship support from their lenders earlier this year and pause their mortgage repayments temporarily. For some, this was due to a total loss of employment, and for others, a reduced household income. This means the pressures of repaying a mortgage have been at the forefront of our minds.
Whether you’re currently on JobSeeker or JobKeeper payments, or just trying to keep your bills low, refinancing your home loan to a lower-rate lender can seriously reduce your mortgage repayments. And if you’ve been on a mortgage holiday and are nervous about meeting repayments again, now could be the perfect time to consider making the switch.
Adding some helpful features
It’s not just lower repayments that can benefit homeowners from refinancing. If you’ve never thought about your home loan features before, you may be able to refinance to a new loan that offers you bigger bang for your buck.
You may have also chosen a no-frills home loan to begin with, but now you’ve built up a little more equity and want more from your lender. You may want to look at a loan that allows for extra repayments, for example. This means any windfalls or savings you earn can be used to chip away at your biggest debt, without a cost.
You could also consider choosing a loan with an offset account for your savings. Any money in your offset account has the added benefit of reducing your overall home loan principal. Further, you may want to upgrade your no-frills option to a home loan package, so you can take advantage of a lender’s credit cards or a line of credit.
Rates have never been this low
One of the biggest reasons thousands of Aussies refinanced between March and June this year, according to the aforementioned ABS figures, may have been because the Reserve Bank of Australia cut the cash rate to an historic low of 0.25 per cent in March.
This resulted in home loan rates plummeting across the market. Interest rates from competitor lenders were brought down to the lowest in Australian history. Reduce Home Loans cut owner-occupier variable loans to as low as 2.19 per cent, and 1- and 2-year fixed loans were also slashed to 2.19 per cent.
If you’ve been banking with the same bank since you were a kid and chose to get a mortgage with said bank out of loyalty and convenience, you may be missing out on some serious savings.
Bigger banks are typically unable to pass on bigger savings to their customers, and historically have not always passed on cash rate cuts in full. However, competitor banks have less overhead and fewer shareholders to appease than the big four, so passing on savings to their customers is a priority.
In fact, if you have a $500,000 variable, owner-occupier home loan with a bank charging 3 per cent interest, switching to Reduce Home Loans may save you hundreds each month in repayments, or thousands in the first year of switching.
|Interest rate||Monthly repayments||Annual repayments|
|Reduce Home Loans||2.19%||$2,166||$25,992|
Figures based on $500,000 variable, owner-occupier home loan paying principal & interest with 25 years remaining. Does not factor in fees or further interest rate movements.