Home Loan Australia: Refinance or Renegotiate?
This year has marked the end of most fixed-rate mortgages, with hundreds of thousands of home loans transitioning back to variable interest rates. Experts note that this is a peak transition period for homeowners, with more than 86,000 fixed-rate mortgages expiring every month from July to December.
To contend with rising rates, mortgage holders are asking the question: Should I refinance or renegotiate?
Refinancing can be a way to reduce monthly repayments, but it’s not even an option for many who are overstretched in their home loans. For those who do have the capacity to refinance, it’s a matter of timing whether refinancing the loan will save money, or simply renegotiating will be better.
Let’s discuss how to decide between refinancing or renegotiating with your current lender based on trends and forecasts in the housing market.
Refinancing Relieves You of Loyalty Tax
Mortgage experts in Australia know one thing: loyalty might mean paying more for owner-occupiers.
It’s evident in the RBA data, where new mortgage borrowers get a variable rate of 4.79%, lower than existing home loans that average 5.29%.
New borrowers are always given better rates than existing home loan clients. Higher rates paid by existing customers are termed as ‘loyalty tax’, and these simply offer higher rates because the lender is confident that their existing clients are satisfied with the mortgage arrangement.
The reality is banks rely on clients not being proactive or aware of the savings they could get and just continue paying the mortgage at the same rate they got at the onset.
But home loan stats suggest that as much as 0.5% of savings are available if a mortgage holder moves on to the rate that new clients get. In actual numbers, that would be an average of $110,000 in savings over a 30-year home loan. Per year that’s about $2,000 difference given the current average mortgage of $500,000.
Experts advise that either refinancing or at least renegotiating your mortgage per year could deliver considerable savings in the long run.
Refinancing is all the talk now, but serviceability is something that can make many borrowers miss out. In a survey of 1,000 respondents by InfoChoice, only one in five mortgage holders have successfully refinanced their home loan. So, while clients aim to refinance, only a few are eligible due to eligibility requirements.
Renegotiating is More Straightforward
Refinancing can bring huge savings, but if you prefer your current lender or are unable to refinance right now, renegotiating is another option. It’s a more direct proposition. The main benefit is a quicker and easier process than refinancing as you won’t have to go through the application process with a new lender.
Clients can make the call every year or a couple of years down the road. Talk to your lender and discuss what are the competitor rates versus the current rate – let the lender know that you are well informed about the market and your lender’s website offers. It’s worth checking in with the bank as you’ll experience their best offer if you do so.
And one important tip? Let your lender know that you are working with a broker. Brokers have access to competitive rates, so you have a better negotiating stance if the lender knows you have options.
Talk to a Mortgage Broker
The mortgage climate is critical this year, with the bulk of fixed-rate home loans reverting to variable rates. About 60% of monthly home repayments are expected to rise, and so clients are continuously finding avenues to manage this surge in mortgage costs.
While the RBA has stabilized the cash rate, and mortgage holders are still managing to make repayments despite the fixed rates ending, the housing market is still rife with supply concerns, increasing prices, and significant mortgage costs for owner-occupiers.
Don’t wait too long before considering renegotiating or refinancing, as you may struggle to get a good rate by then.
Want to be proactive? Discuss your mortgage statement, rate, and loan features with our brokers. We have decades of experience assisting clients in applying for a new loan, renegotiating, and refinancing. We’ll handle things on your behalf and work towards the best rate for your situation.
