If you’ve been hearing lots of stories about people refinancing their home loans in search of lower interest rates, there’s a very good reason.
Refinancing is at record levels, according to data from the Australian Bureau of Statistics.
Borrowers refinanced $19.9 billion of mortgages in February – 22.6% higher than the year before, when refinancing activity was already very high.
Why you might be able to refinance to a lower rate
One common reason borrowers refinance is to switch to a comparable (or better) loan with a lower interest rate.
Even if you got a sharp rate when you took out your loan, there are three reasons why you might qualify for a lower rate today:
- Lenders often charge lower rates to refinancers than existing customers. In other words, if someone refinanced from another institution onto the same loan as you, there’s a chance they’d be given a lower rate than you.
- The mortgage market is very competitive. So even though your lender may have been offering one of the best deals in the market at the time you got your loan, other lenders might have lifted their game since and started offering even better deals.
- Your financial circumstances might’ve improved. If you’ve built up equity in your home or increased your household income since you took out your loan, you might now be able to qualify for deals that weren’t available to you then.
Refinancing in this climate
Many people breathed a sigh of relief earlier this month when the Reserve Bank of Australia (RBA) left the cash rate unchanged, following 10 consecutive rate rises.
However, when RBA governor Philip Lowe announced the decision, he warned that “some further tightening of monetary policy [i.e. some further rate hikes] may well be needed” to drive down inflation.
If that happens, it is a good idea to keep a close eye on your loan to ensure you don’t pay a higher interest rate than necessary.
Get in touch if you’d like me to compare home loans for you and see if you could refinance to a lower rate. Depending on your situation, switching could save you tens of thousands of dollars over the life of your loan.
