Be ready to brace yourself for the year ahead.
Australian borrowers should be warned that 21014 may be a disappointing financial year. According to a recent survey conducted by finder.com.au of leading Australian economists, the interest rate cycle could have hit bottom and interest rates are likely to rise in the next year or two. Borrowers have benefited from the ‘free money’ handed over by lenders from passing on rate drops, but with no further rate cuts expected, borrowers are facing a tough outlook for 2014.
The average standard variable home loan rate in the finder.com.au database has fallen by 0.61 percentage points since December 2012, which is $117 handed back in monthly repayments for a $300,000 home loan.
finder.com.au average standard variable home loan rates:
|Average standard variable rate||Monthly repayments for a $300,000 home loan|
*source: finder.com.au, monthly repayments based on a $300,000 loan over 30 years
Borrowers need to start preparing now for a tougher year ahead and one way to do this is to consider refinancing. Borrowers in 2014 can take advantage of the low interest rates on offer and refinance your home loans. From the start of 2013 to October, there were 160,549 refinanced home loans, according to the latest Australian Bureau of Statistics (ABS) figures. One in every three loans were refinanced each month and the value of refinanced home loans has reached over $4.9 billion in October – the highest value for refinancing we have ever seen.
There were also 732 more refinanced home loans in October than September and 1,283 more refinanced loans in October 2013 compared to October 2012. Mortgage holders should consider home loans that offer a lower rate and work out if they can save money by refinancing in the new year. When you are faced with a tough financial climate, it’s important to keep informed and be confident that you are maximising your savings potential. With the ‘free money’ drying up, it’s time for borrowers to find their own savings by comparing deals, which will lessen the impact of rising rates down the track.
Before you decide to refinance, there are a few things to ask yourself.
- How much will I save by switching to a lower rate?
This is one of the most important questions to ask when you are considering refinancing. We often think refinancing to consolidate debt or to receive lower interest rates will save you money, but this is not always the case. If you will save money, how much will you save and is it worth it? You can use a calculator to compare different home loan rates to determine their savings potential. There are several useful mortgage calculators on finder.com.au
- What exit fees will I have to pay?
This will have to be taken into consideration alongside your savings. Exit fees are common in home loans and it’s important to work out how much you save compared to the fees you may have to pay.
- Was my loan opened after July 1, 2011?
If your home loan was opened after this date you won’t be charged early exit fees on variable rate home loans, but break costs still apply for fixed loans.
- Am I refinancing to renovate?
You need to ensure you choose the appropriate refinancing home loan for your situations. If you are refinancing to renovate, compare different home loan types that offer free redraw or a line of credit facility.
- How much equity do I have?
If you have less than 20% equity it is probably not worth refinancing as you will have to pay Lenders Mortgage Insurance again.