Experts say that the right time to refinance depends on one basic principle: when the difference between your current interest rate and the average market rate is close to 1%.
However, there are a range of reasons why Australians could consider refinancing:
- Securing a lower interest rate
- Paying fewer mortgage fees
- Decreasing monthly mortgage repayments
- Rolling several existing debts into one package
- Accessing equity for a large-scale purchase
- Switching to a different lender
One of the biggest reasons that homeowners are considering refinancing in 2023 is that a record number will be leaving their ultra-low fixed rates and reverting to higher standard variable rates. These revert rates are typically much higher, meaning that your repayments could be higher.
If this sounds like you, then you may want to consider refinancing. This means taking your mortgage debt and moving it to a different lender with a more competitive interest rate. In turn, this means your repayments could be lower, as you’d pay less interest.
Refinancing is a strategy that could save you thousands - potentially hundreds of thousands over the life of the loan, depending on your loan size and loan term. So, it’s often worthwhile investigating if refinancing may suit your financial situation, instead of being complacent about the current rate you are on.
1. Negotiate a better home loan rate
If your mortgage repayments are becoming overwhelming for your budget, it’s worthwhile taking the simple option first and asking your lender for a rate cut.
Generally speaking, lenders reserve their most competitive interest rates for new customers to entice them to sign up. Find out what these rates are, pick up the phone, and request the lender match this rate. If you’re not sure what to say, follow our handy guide on negotiating your home loan rate.
From personal experience, I reached out to my lender to see if there was anything more competitive they could offer me and they did indeed reduce my rate. Of course, not all lenders will say yes. But it’s often worth asking the question, especially if you let your institution know that you are looking to refinance.
2. Compare rates to get a feel for the market
If your current lender hasn’t reduced your rate, or it did and you’re still unhappy with it, now is the time to consider looking for a better deal. Using a comparison table allows you to look at multiple loan products and compare them all in one place.
This lets you get a feel for how your current rate compares to others, and what rates are currently available. You’ll never know what competitive home loan options are available until you start shopping around. It’s important to not just rely on the Big Four Banks, but to check out smaller lenders, digital banks, credit unions and other digital loan providers. Smaller lenders may be able to offer lower rates and fees on average to remain competitive.
A comparison table can come in handy here. Instead of visiting multiple websites, you can see a relatively comprehensive list all in one place. Compare apples with apples by filtering down a range of loan options and viewing how they stack up against each other.