It appears the Reserve Bank is seeking to contain the economic fallout from the escalating corona-virus crisis by slashing interest rates to a record low of just 0.5%. At the same time, the Prime Minister has appealed to the major Banks to pass on the full cut to their customers, implying it would be "un-Australian" not to do so. As from the date of publication, it appears the big four banks have obliged. This is pretty big news and a huge leg-up for the average mortgage holder, as it has been many years since the Banks have passed on the full rate cut to its customers.Only last month, economic experts were doubtful that the RBA would reduce rates again, but since the virus outbreak has progressed out of China, share markets around the world have responded downwards.
The average mortgage holder could save up to $60 a month if they receive the full rate cut from their lender. This is based on a $400,000 mortgage paying principal and interest. If your lender doesn't pass on the full cut or hasn't passed on anything from the previous rate reductions, then it could be worth looking at options to refinance with a different lender.
So what does a rate cut mean for mortgage brokers?
Whilst the idea of refinancing your mortgage can be a bit daunting, there are both short and long term benefits to refinancing. This includes tapping into new features such as offset accounts and the ability to have your salary paid directly into the loan.
Refinancing is as simple as paying off an existing loan and replacing it with a new one to improve your circumstances. Changes may include taking advantage of lower rates, shortening your loan term, adjusting repayments on your loan, so you can own your home sooner; accessing equity to purchase a new property or do a renovation; or taking out a loan with added features such as an off-set account or redraw facilities.
A number of lenders are offering cash back incentives as well. In some case, there are up to $4,000 cash rebates on offer. More here
Your should consider refinancing when:
- If your interest rate is greater than .75% above a current rates.
- If you want more out of your deal. Consider refinancing if you need a bit more flexibility in your loan arrangement, such as line-of-credit or a redraw facility.
- If you need extra cash or equity in your home
- If you need funds to use for investment purposes, school fees, renovations and other important matters.
- If your circumstances have changed. If a significant change recently happened in your life (such as marriage or a job change), maybe it’s time to change your loan, too.
If you are unhappy with your current lender and don't feel like you are getting the service you need.
- If you need to consolidate debt. Refinance your loan if you need to roll other higher interest loans (like credit card loans or personal loans) into your home loan.
Rob Emmett, CEO of Collins Home Loans says, "It is prudent to review your mortgage at least every two years, even if it's just to check that your mortgage is still achieving your financial goals".
An initial call with a mortgage broker to see how rates compare will only take a few minutes. The refinance process will likely to be more streamlined, compared to when than when you applied last time, as lender technology has improved the speed and agility of the application process. And besides, isn’t the amount of money you could save worth the time and effort?
Introductory rates can be refinanced too
Seeing your rates increase after the introductory period can be incredibly stressful and place a squeeze on your budget. Many people assume they’re stuck, but as long as you are past the two year claw-back period, these loans can also can be refinanced, just like fixed-rate mortgages. You can even switch to a shorter term fixed-rate mortgage, such as 15 or 23 years. The longer you’re planning to stay in the home, the more sense it makes to look into refinancing.
Get an obligation-free home loan assessment
Devoting 15 minutes of your time to reviewing your home loan could save you thousands of dollars, or at the very least, offer you peace of mind that your existing home loan is still meeting your financial goals. Contact Us here to arrange a no-obligation review of your current loan.