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Refinancing your Home Loan in the Current Economy

It goes without saying (though we’ll say it anyway) – savvy homeowners understand the benefits of refinancing their home loan. Unlock equity in your loan to fund a major purchase, reduce your repayments, or reduce your total loan amount to get your mortgage paid off sooner. No matter your reasons for looking into refinancing, the current record-low interest rates and rising property values (particularly here in WA) means that for many homeowners, the time is right.

Despite the favourable refinancing conditions prevalent right now, research shows that over half of Australians who have owned a home for more than five years have not considered refinancing their loan. There are a few reasons for this, which we’ll dive into a bit later, but first let’s recap the benefits that refinancing can bring.

Refinancing your Home Loan – The Benefits

When you look at what refinancing can do to your hip pocket, the impact can range from fairly immediate to long-term. In the short-term, refinancing may unlock equity in your home to fund a large purchase. This is often a second property (usually an investment property), or sometimes a car, holiday, or other things that require significant upfront capital. Another attractive outcome is reducing your loan repayments. Given the low interest rates on offer at the moment, the chances of finding a better deal with another lender is higher than it would otherwise be. Even a small reduction in your interest rate, less than one percent for instance, could potentially save you thousands in the medium- to long-term. While this depends on things like your remaining loan principle, your current interest rate, and the equity in your home, it is certainly worth exploring for this reason. A third reason homeowners might look into refinancing is the prospect of reducing their total loan amount so they can pay off their loan sooner. The upsides to this are pretty obvious – pay less interest and get the debt out of the way sooner than anticipated!

Refinancing your Home Loan – The (Perceived) Barriers

As mentioned above, the timing is right for many borrowers to refinance their mortgage. Many Australians are cutting back on spending, property prices are trending upwards, and interest rates are at record lows. The barriers to refinancing, according to research conducted by Compare Club, include the perception that refinancing would be too complex, a desire not to move away from a fixed rate, exit fees being prohibitively expensive relative to the savings associated with refinancing, and all financial products currently being with the same lender (and not wanting to disrupt that).

As you can probably tell, many of these perceived barriers are quite easily overcome with a bit of time investment and education. Engaging with a broker will not only reduce the complexity for you as a borrower, but also provide you with clarity around the potential savings you may enjoy should you refinance. Regarding the fixed vs variable rate argument, the prospects of a sharp rate rise in the near future appear to be slim to none. Fixed rates are all well and good in an uncertain market, but the low variable rates on offer at the moment are where the real savings can be found. Exit fees and other associated penalties can be a costly exercise, but in many cases the savings you’ll enjoy far outweigh that initial outlay – that’s why it is important to really understand the savings potential in the long-term. Finally, having all of your financial products with the same lender can certainly be convenient, but you need to assess whether or not the potential extra costs is really worth the convenience. Digging deeper, really assess what the convenience is at the end of the day – are there any significant time savings or an increased level of customer service just for having all your eggs in one lenders basket? Often, the answer is no.

Next Steps

If you think it might be high time to get your home loan in tip-top shape and ensure that you’re not spending more than you need to, refinancing may be the next step. It is critical not to go it alone – engage with a broker, like those in the Finance team at McKinley Plowman, to ensure you’re getting the best deal for your financial situation. We’ll consider your present circumstances, expenses and financial goals, and then tender out the work to multiple lenders and present you with the best options. We’ll take care of the whole process, so you don’t have to stress.

Give us a call today on 08 9301 2200 (Joondalup) or 08 9361 3300 (Victoria Park); or visit our website at www.mckinleyplowman.com.au for more information.

written by:

Paul Moran

Paul has over 35 years of experience in finding financial solutions for homebuyers, investors and business owners.
A licensed broker and member of the Mortgage & Finance Association of Australia (MFAA), Paul’s extensive experience includes 20 years with a major bank, seven of which were as commercial banking manager.
Paul delivers a holistic financial solutions to achieve the best possible outcome for a client’s personal or commercial lending needs. Paul also provides a comprehensive financial consultancy to business owners on commercial, equipment and invoice finance.