Considering a mortgage refinance – there are some great rates and other incentives
Really what have you got to lose? Unless you are on a fixed rate loan early exit fees were banned years ago and so for variable interest rate loans there is very little risk. If you don’t like the product you can move to another usually for very little cost and often no cost at all. But we are confident that the loans your broker recommends are going to not only be suitable, but good value as well. They will provide you with a full range of comparisons between all the best current home loan options. We also have a simple refinance calculator to show how much you can save.
The mortgage refinance process can vary dramatically from one lender to another. It really should be easier than it is and while some lenders offer a “fast refinance” option you must remember it is not in your current lender’s interest to cooperate and some will be downright obstructive – when they call you with a last minute offer you should ask yourself if they really deserve to retain your business.
Why should I consider a mortgage refinance?
With many lenders, especially the bigger lenders the idea of customer loyalty is a thing of the past. We often ask lenders to give existing clients a better deal but they rarely match what they are currently offering to new customers. Branch staff including the managers are constantly turning over and so there is little chance to develop an ongoing relationship. In addition to this the account management process has been taken away from the individual managers/staff and centralised, in some cases offshore and so the policy and procedures can very often be a barrier to common sense and good customer relations.
But even the lenders with the best personal service at times feel the need to reduce their risk profile or increase their margins and at some stage most lenders go through a period where they become less competitive.
What are the risks of refinance
When considering a mortgage refinance there are a number of issues that you should be aware of:
- your original loan term was probably 30 years – if you refinance even for the same loan amount unless you specify otherwise the new term may be another 30 years starting from the refinance date. This can mean that unless you adjust your repayment schedule or the loan term even with a lower interest rate the total cost of your loan may be higher.
- if you are using interest only you must realise that the loan balance is not reducing and at some stage you will be called upon to start repaying the loan. This may be over a significantly shortened loan term resulting in much higher repayments. You should take this into account and have a clear exit strategy eg: sell the property in case the repayments create financial difficulty.
- if you are consolidating some short term debt eg: credit card or car loan, unless you make provision to increase your repayments the amount will be paid over a much longer loan term and while the repayments may be lower the cost will ultimately be greater. It is important that if you proceed with this strategy then you should ensure that your existing contracts ie: credit cards or personal loans are closed otherwise you may be tempted to end up where you started but much worse off.
- if you are using your primary place of residence to secure investment debt you must realise that a downturn in investment returns or value could place your home in jeopardy – eg: a margin call for which you have no funds to cover
Asic offers a very useful mortgage comparison tool.
The cutting edge interest rate discount of 2 years ago may be very ho-hum today
Many borrowers realise that their current home loan is not as competitive as they once thought and decide to look at at a mortgage refinance. This may simply be result of your current lender not passing on full RBA rate cuts and this means their standard variable interest rate creeps up. This may also mean that your discount is the same but the base has moved. In other cases lenders may be enjoying access to cheaper funds for example from off-shore and this allows them to offer larger discounts than they could previously. One of big down sides to the loss of ‘customer loyalty’ is that the lenders only offer these new bigger discounts to new clients and often ignore their existing customers.
Your mortgage broker can try to negotiate a better rate with your current lender often with a good outcome as the lenders know that we will only be recommending them to new clients based on how well they treat their existing clients. However some lenders simply refuse to budge on interest rates. They know that a borrowers think a mortgage refinance can be a tedious and expensive process and they rely on this complacency to keep their margins.
A mortgage refinance can save you thousands every year
By law your broker won’t refinance your mortgage unless they are certain that there is a clear benefit for you, that isn’t just our pledge, it is now the law!