The number of borrowers switching lenders hit an all-time high in August last year, with the Australian Bureau of Statistics reporting home loans valued at $18.88 billion were refinanced, up 5.3 per cent on July.
While rising interest rates are recognised as a key driver, borrowers also look to refinance to consolidate debt, release equity, buy out a partner, remove a guarantor, or even take advantage of a lender cashback offer.
So, is there a best time to refinance? Industry experts say there isn’t a one-size-fits-all solution.
“Every customer is unique, and understanding their individual circumstances when supporting them in their home-buying journey is critical, including when people decide to refinance,” says Peter Bouhlas, Bankwest’s general manager of home buying.
“Identifying the best time to refinance is almost completely dependent on borrowers’ individual circumstances, so it comes down to finding a lender that is willing to take the time to adequately understand customers’ needs and expectations.”
Lending policies, credit assessment criteria and eligibility vary between financial institutions, so it’s important for borrowers to consider their individual circumstances, or seek the advice of a financial professional, to understand what options are available and the most appropriate strategy for their refinancing goals.
Bhisan Raj, general manager of broking at homeloanexperts.com.au, says it’s important to remember that refinancing comes with paperwork and expenses, which can include hefty discharge costs.
“For example, if a client has to pay lenders mortgage insurance again, due to an LVR above 80 per cent, then refinancing might leave them worse off financially, even if it means getting a lower interest rate,” he says.
“Also, if a client is on a fixed-rate term, they will probably have to pay break costs to refinance and a broker must analyse whether the benefits of refinancing outweigh the expense of the break costs.”
Raj says the financial habits of each client should also be considered before refinancing.
“Cash-out refinances for consumers who spend a lot are risky,” he warns.
Ultimately, the decision to refinance comes down to knowing what you want to achieve and then weighing the costs versus the benefits.
“The determining factor for when to do it is whether it will improve the home owner’s financial position enough to make up for the cost,” says Raj, adding that refinancing every three to four years is best for many people, as banks give better deals to new customers.
“Individuals should do a health check of their home loan regularly, to ensure they have a competitive interest rate, and try to negotiate with their current lender or refinance for better rates if necessary,” Raj says.
“A periodic general review of their financial situation is also part of the right approach and brokers can help with this.”
Bouhlas says selecting the best home loan product is rarely as simple as looking for the lowest rate, especially when the difference between lenders’ rates can be negligible.
“It’s becoming more common to see borrowers refinancing to make their money work better for them,” he says.
“That can include, of course, a lower rate, but also moving to products that provide greater flexibility, such as through providing a redraw facility, or up offset accounts.
Regardless of what you choose to do, however, it’s worth doing your homework to ensure refinancing puts you in the best financial position for your circumstances.
f you’re a first-time investor or it’s been a long time since you last bought property, the property hunt can be a daunting prospect. Like any other major purchase, solid preparation helps to ensure a smoother journey. “Think of it like travelling to a foreign place – most of us … Read more
Bright colours and patterns are in, stark whites are out. Home offices are gradually being taken over by more integrated spaces and curves are back in a big way. The design trends of 2023 are here and they are making a departure from some of the popular looks of last … Read more