For the first time in 10 years, borrowers are starting to look more closely at their home loan interest rates. For many home buyers, the May rate rise announcement was the first rise they had experienced in their home buying journey.
Cost of livings pressure are immense, house prices in major capital cities are softening and there is instability internationally as Russia and China flex their muscle. These concerns are not just feelings, they’re facts.
The latest Australian Bureau of Statistics data shows refinancing surged to almost $18.2bn in June – a monthly record. That eclipsed its earlier peak of $17.2bn in August last year (in the middle of the Melbourne and Sydney covid lockdowns).
Loyalty to your current bank is a dying trait. Australians are becoming ‘savvier’ and improving their financial literacy by assessing their options in market. Here are the reasons why you should join the refinancing boom:
Loyalty can cost you $3360 a year
· The most common benefit of refinancing to a lower rate is the savings it places directly back into your pocket. Reducing your rate by 1.0% on a $500,000 loan will enable a saving of $3360 for the first year, regardless of having additional funds in an offset account
· Even a 0.5% saving of a $500,000 loan will save $1680 a year.
New customers receive lower rates than existing customers
· Banks are money making machines and it’s no surprise that they entice new customers by offering considerably lower rates than existing customers.
· For example, Westpac are industry leaders when it comes to a ‘rate gap’ between new and existing borrowers. They are currently offering a two-year honeymoon home loan rate to new customers that is 1.09% percentage points below what existing borrowers are paying.
· CBA are a close second with a rate gap of 0.93 percentage points between existing and new borrowers
· Hence, you get a better rate by switching lenders
Your loan structure may not be the best fit
· The statistics show that Australians have record household savings in their bank accounts due to the covid period being so restricting on travel and lifestyle activities.
· A current client had over $100k in savings yet this was not attributed to an offset account. We were able to refinance our client to an institution that offered this product feature – reducing the interest payable on their home loan.
· This client will now pay off their home loan debt five years sooner than expected. Release equity for future investments
· With a property boom, comes an equity boom. Australians are sitting on useable equity, and many don’t even realise.
· We understand that investing in property is not for everyone however we love to educate clients on the opportunities available to utilise their equity.
· It is quite common for clients to refinance to lower rate and withdraw equity for an investment property purchase.
· You save on your home loan, and you invest for your family’s future – now that’s a winner!
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