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With current interest rates high, Home Loan Experts’ team of mortgage brokers is urging home owners and investors to consider refinancing.
Senior brokers Jonathan Preston and Vivienne Than, along with brokers Pramesh Vaidya and Siddhartha Bajracharya, highlight key reasons why acting now can provide both immediate and long-term financial benefits.
So, why is now a great time for refinancing?
Buying another property
Bajracharya believes refinancing offers a prime opportunity for those looking to invest in property.
“Right now, rates are high, so you want to be with the cheapest rate available,” he said.
“If you’re thinking of purchasing a new investment property, it’s the best time to refinance and access equity from your current property. Prices could soar when rates start to fall, so if you have enough borrowing power, refinancing now to access equity is ideal.”
Lowering your interest rate
Vaidya advised borrowers with higher interest rates to act now.
“It depends on the rate the applicant is on. If the rate is 6.2 per cent or above, while the loan-to-value ratio (LVR) is less than 80 per cent, they can look to refinance for a better rate,” he said.
Act while values are higher
Than highlighted the advantages of refinancing while property valuations are high.
“While the valuation is higher, we can use it to release the most equity for cashout, renovations, debt consolidation, or purchasing another property. Most banks charge a loyalty tax for existing clients, so refinancing every 2–3 years ensures you have the best rate possible,” Than said.
‘Make your own destiny’
Preston took a broader perspective, urging borrowers to take control of their financial future.
“Don’t wait for the market, make your own destiny. You can find uncertainty at any time,” he said.
Does locking in a lower rate now set borrowers up for future benefits?
Vaidya explained how acting now can set borrowers up for future savings, saying: “Locking in a 0.5-point decrease now sets borrowers up to be 0.75 points lower by next year.”
Bajracharya believes that variable-rate mortgage holders are in the best position to benefit from expected rate cuts.
“If it’s a variable rate, then yes, it’s worth a shot to reduce your current rate and remain eligible for the expected rate cuts,” he said.
However, he said that fixed-rate borrowers face limitations: “If you’re doing a fixed loan, you’ll typically be under the fixed rate until the term ends. Breaking a fixed-rate product comes with additional charges, called break costs.”
What are some other benefits of refinancing?
Bajracharya said that refinancing can be used to restructure loan terms, making repayments more manageable.
“Say you’ve been with your current lender for 25 years. When refinancing, you can make the loan term 30 years again. For example, on a $1,000,000 loan at a 6.5 per cent interest rate over 25 years, the monthly repayment is $6,752. Refinancing to a 30-year term reduces the repayment to $6,321, making it easier on cash flow,” he said.
“Borrowers can also access equity and put it in an offset account.
“This doesn’t change your overall repayment but enables you to pay less interest and more principal, reducing the principal sooner while keeping the flexibility for future investments.”
Than also said that refinancing can be used for a variety of purposes, including releasing equity for renovations, debt consolidation, or purchasing additional property.
“It can also reduce repayment amounts and increase family cash flow,” she said.
Vaidya highlighted the benefit of consolidating debts, saying: “Instead of paying higher interest on personal or car loans, consolidating debts into your mortgage reduces the interest rate and simplifies repayments.”
Why act now instead of waiting for potential rate drops in May?
Bajracharya encouraged borrowers to act now rather than waiting for future rate drops.
“Well, if you’re able to get a better rate right now, why wait until May?” he said.
“We all heard that rate cuts were to happen in January or February, but [banks have now pushed their predictions back] to May. Borrowers can refinance now and still apply for another refinance when rates start to fall.”
Than agreed, saying: “You should always be in a position to hunt for a better rate. Having the refinancing done now doesn’t stop you from refinancing again in May if a better deal comes along.”
Preston offered a more practical perspective, saying: “Don’t expect rate drops – expect the status quo and plan accordingly.”
Than concluded by noting the value of refinancing during life transitions: “If people expect a change in their situation, like a new job or having a baby, they should consider refinancing to lock in the best deal, releasing equity, and parking the money on the side as a buffer.”
[RELATED: Borrowers may have to compromise amid housing challenges]
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