Homeowners and investors are refinancing at never-before-seen levels as rising interest rates take their toll.
PEXA research showed more than 450,000 homeowners refinanced in the 2022-23 financial year, while an InfoChoice survey revealed two-thirds of mortgage holders are planning to do so in the near future.
The rush to switch lenders has come about in the face of the RBA’s most aggressive interest rate hiking cycle in memory, which has led to the much-publicised ‘mortgage cliff’, which is seeing hundreds of thousands of home loans rollover from fixed interest rates in the 2-3% range to variable rates of 6% and above.
For today’s borrowers, finding the right product with the best rates and features can save thousands of dollars a year.
I want in!
Sound like a good idea? If you have been paying off your mortgage longer than a year, you will certainly not be on the best deal, especially if you have been paying variable interest rates the whole time.
Banks love lazy customers because they make all their money from charging you interest. If you don’t kick up a stink and harness the competition, they will happily go on taking your hard-earned cash. And it works for them. When was the last time you heard a major bank report anything other than record or near-record profits for a quarter or financial year?
Banks operate by recruiting new customers and then retaining their existing ones. But while they serve up their best deals to actively recruit new customers, they will only throw a bone to a loyal customer of many years if you kick up a stink and demand it.
Assume there are better deals out there. First, shop around online or get in touch with your mortgage broker. There are lots of comparison sites now that will give you the rates of many lenders in one place, along with the features that might make or break the deal for you.
Clean up your credit score.
Refinancing is essentially applying for a new loan. You need to be a desirable customer for the next lender. So, it’s best to make sure your house is in order. Pay off any bad debts like credit cards or personal loans (get rid of the credit card altogether if possible) and rein in any frivolous spending while you’re on the hunt for the best refinance option.
It’s also a good idea to access your credit score.
The federal government’s Moneysmart website states that you can get your credit score for free from:
Experian: call 1300 783 684; Illion: call 132 333; or Equifax: call 138 332.
It’s worth checking out more than one (especially if they’re free), as different agencies might have different information on your credit status.
Credit scores are considered ‘excellent’ if they’re above 800 points. If yours is below that, you can take measures to improve it within 30 days, such as paying down bills or credit cards.
Don’t overlook fees or flexibility!
The financial benefits of securing a better interest rate can be undone pretty quickly if you’ve rushed into the wrong loan product.
First of all, refinancing involves costs such as application fees, valuation fees, settlement fees and even exit fees from your current mortgage. You’ll need to make sure the interest saving on the new loan covers those costs.
Then, there are the features. Does the new loan offer flexible repayment options? Can you make additional repayments without penalties? Can you offset your savings against the mortgage so you reduce the amount of the loan that you are paying interest on?
Leverage your lender
Sometimes, your current lender just needs to be pushed enough to get you a better deal. Most banks will have a specialised customer retention unit. If they lose you as a customer, it means losing all that interest money you pay them during your mortgage. They don’t want that.
If you are ready to leave, call your lender and ask them for a mortgage discharge form. This is where they will usually present you with their best offer to keep you on board. If you can get your current lender to match the better deal, you can make the savings by staying and not having to deal with the refinancing costs, plus the admin hassle of having to switch banks and update your details for direct debit, subscriptions and in other
