Australians refinanced at record levels in 2023, which was understandable. There’s nothing like being slugged with hundreds or even thousands of dollars extra a month in interest repayments for getting you engaged with your finances.
Many borrowers had been lulled into a state of complacency because, until early 2022, it had been more than 12 years since the RBA had raised the official cash rate.
Of course, we all know what happened next…the most aggressive hiking cycle in history, sending the official rate from 0.1% up to where it sits now at 4.35%.
Unsurprisingly, the banks passed on those increases in full to their borrowers.
Someone with a $500,000 mortgage is now paying more than $1100 a month extra to the bank than they were before the hikes began.
Anyone who hadn’t refinanced for a while quickly found out they weren’t on the best possible deal they should be. They also hopefully learned the importance of staying engaged going forward.
Even though the rate hike cycle now appears to have peaked, you should regularly review your loan products and refinance to a better deal when it suits you. Here are some of the advantages.
Pay less to the bank
Thanks to compound interest, if you are paying a rate too high by even 0.5%, the difference can cost you more than $100k over the life of a loan.
That’s money that could have been reinvested into building more wealth that is given needlessly to a bank.
Refinancing can mean paying less each month in other ways too. You may have 20 years left on your loan term but need to boost your cash flow. You could do this by refinancing to a longer loan term, such as 30 years. You could also refinance to interest only if you are currently paying down the principal.
Of course, if you pay less by the month using these methods, you will usually end up paying more over the term of the loan, so think about why you are doing it. If it’s to free up money to put into further property investment, that means you are still making the money work for you. If it’s to help pay for something you otherwise couldn’t afford, like a holiday, that may not be such a good idea.
Get your equity!
Refinancing regularly can also mean you access the equity in your portfolio, especially in recent years when most markets have experienced some value growth.
If you have invested in a property for below market value, refinancing in the short term means you can use value gains to expand your wealth. It’s a great way to keep investing, or fund value-adding renovations, without having to save cash every time for deposits.
Equity is the value of your asset, minus what you still owe on it. If you owe $200,000 on a property that’s worth $300,000, your equity is $100,000. But you can’t use the whole lot. A lender may allow you to use equity on 80% of the value of the asset, depending on individual risk factors and other circumstances.
So what do I need to do?
The first thing to do is contact your Zinger Finance mortgage broker and find out the best deals on the market for someone in your financial situation.
Lenders reserve their best deals for new customers or existing customers who threaten to leave, and your mortgage broker will know all the latest offers and bonus features.
If you want to gain some knowledge, numerous comparison websites will give you the rates of many lenders in one place, along with the features that might make or break the deal for you. Your broker can then talk you through the process in detail and help you understand what deals may or may not be available for you, as well as the deals that aren’t advertised that you might be able to unlock by having better loan-to-value ratios or other financial bargaining tools.
