Down under, the average homeowner changes their loan every four – five years, that’s right it is very rare that we stay with the same lender for 30 years, especially if you want to make sure you want a good deal.The past two years home buyers have been graced by the RBA, with some of the lowest rates in our history! But does cutting the cash rate mean you should refinance?
As we all know, there is no one size that fits all, and there are a lot of factors to consider before making the decision to refinance. It is important to understand what lenders pass on the RBA’s rate cuts. It is crucial for borrowers complete do yearly home loan health checks by asking yourself the following questions.
Does the cost out weigh the money you save?
Yes refinancing is usually done to save you money over the long haul, but the process to change your lender usually costs. Make sure you understand the costs involved, and calculate whether the amount saved in interest over time will be greater than the refinance cost.
Am I in a fixed rate loan?
If this is the case, breaking the agreement may add greater costs, which can be huge depending on how far into your fixed term you are and the size of your loan.
Are there lower interest rates out there?
If you see advertised interest rates more than 0.5% less than your current interest rate, it might be worthwhile changing or at least asking for a better rate with your lender. In saying that keep in mind you also need to consider what monthly and/or annual fees you are comparing your currently loan with, and the features you require, such as offset accounts.
Are my goals & needs changing now or in the future?
Times change and so do your goals and needs, so it is important to make sure your home loan is still right for you. Maybe it’s not flexible enough or have the features you need, like an offset account to reduce your interest, or perhaps an interest only home loan for your investment property, or maybe you’d just like to access some equity? These are all reasons to refinance.
So in summary, you need to:
1. Know what your current interest rate & fees are
2. What are your short to medium term goals?
3. If you don’t already have a Mortgage Adviser, then speak to your bank and find out what the best rate they can offer is
4. Then get a second opinion from a Qualified Mortgage Adviser and find out what the best rate they can find for you is that suits your needs and what it will cost to exit your loan