Should you refinance your home loan before rates go up?


Interest rates are expected to rise in just a few weeks, with June 7 confirming itself as the likeliest date for the Reserve Bank to raise the official exchange rate for the first time in nearly 12 years.

Rising cash rates are expected to be followed by an increase in variable mortgage rates, meaning millions of Australian homeowners could soon be hit by higher mortgage repayments.

“After a long period of historically low interest rates, all signs point to the RBA raising rates later this year,” said Jessica Power, head of wealth management and personal banking at HSBC, Australia.

“For mortgage holders, this means that now may be a good time to consider refinancing and take advantage of low interest rates while they last – which can potentially help you save on your loan repayments. ready and enjoy a short journey to home ownership.”

When is refinancing worth it?

The benefits of switching to a new loan really depend on the current rate you’re getting, according to Finder home loan expert Richard Whitten.

“No matter what the market does, you’ll save a lot by switching anytime,” he says.

“But if you haven’t refinanced in years, you’re probably on a really bad rate. For example, if your interest rate starts with a ‘3’ or a ‘4’, you’ll probably be able to start saving money. from day one by changing.”

Here is an example. By refinancing a $400,000 loan (which is repaid over 20 years with principal and interest repayments) from a rate of 4% to a new rate of 3%, you could reduce your repayments by approximately 2,466 $ each year – that’s $49,327 in savings over the life of the loan.

And while lower repayments are certainly a motivating factor for most borrowers, Power notes that there are other benefits to switching lenders.

“Refinancing can also bring a number of additional benefits when done smartly, such as helping you consolidate debt, accessing home equity for renovations or investments, or accessing features such as withdrawal facilities or flexible repayments.”

Should you consider cashback?

One of the biggest indicators of the competitiveness of the home loan market in recent years has been the increase in the number of cash back offers promoted by lenders, many of which were in the $2,000 to $4,000 range. But are they worth it?

Whitten says if it’s two loans with comparable rates, going with the option that offers cash back is a no-brainer.

“I can totally understand why people are motivated to switch to cashback and I don’t think there’s a problem with that at all, but they should also be aware of the interest rate they’re getting because, in the long run, a competitive rate will definitely save you more than any cashback offer.”

“The maximum you’re likely to get from a cash back deal is between $2,000 and $4,000 at most, which is a lot of money, but if you switch to a competitive interest rate, you might be able to save $2,000 to $3,000 in a year depending on your old rate.”

What does a low rate look like?

So which lenders are currently offering some of the lowest rates? As shown in the table below, several of the lowest variable rates in Finder’s database are still below 2.00%, although of course they could change quickly if the cash rate is lifted.

Aside from refinancing, Whitten encouraged all mortgage holders to take a close look at their financial situation ahead of a likely rate hike.

Rate hikes are coming – it seems pretty inevitable. So as a current mortgage holder, or someone looking to take out a new loan in the near future, it’s worth mentally considering the impact of a few rate hikes on your loan repayments.”

“Add another 1-2% on top of your home loan rate to see how much your repayments increase and then you can see if you’ll be potentially comfortable making those payments or if you need to adjust your spending on any line.”

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