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Mortgage expert explains: How to make refinancing your loan work right now

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You're likely paying too much on your home loan. So why does this expert say you shouldn't refinance?

The number of borrowers refinancing their home loans has hit the lowest amount since before interest rates started rising in 2022.

After almost 2 years since that time, most borrowers have likely already refinanced.

May 2023 saw a record high number of borrowers refinancing. By the end of the year, refinancers had dropped by 60%.

Mortgage brokers saw the push towards refinancing begin during COVID when there were incredibly low interest rates. It continued as borrowers fought against rising rates "until more or less everyone had refinanced, and cashbacks had abated or disappeared", said Two Red Shoes founder and broker Rebecca Jarrett-Dalton.

2 reasons borrowers are still refinancing

Although numbers are lower, there are still 2 key reasons people are choosing to refinance: saving money when your lender won't meet competitive repricing and/or increasing your loan value when your existing lender won't allow it.

With interest rates at a 13 year high, borrowers have been seeking savings. But Jarrett-Dalton warns that in the current environment, it's not worth switching for small savings.

Refinancing your loan comes with costs, so any savings need to be worth it. In fact, she says anything less than 50 basis points is probably not worth it.

With so many incremental interest rate changes, it also may not be wise to jump at another offer when your existing lender may offer something better in the future.

Look out for the right savings

So before helping customers with refinancing, Jarrett-Dalton always starts by seeing if she can re-price their existing loan – which she says has been very successful.

"The aim of the refinance is to save more than double the cost of refinancing in a short period of time," she said.

"Borrowers should be looking out for opportunities to make savings of 0.5% per annum or greater- and also keep their ear out for potential fixed rates which currently are not pretty – but there could be good offers on the horizon, always depending on their plans for their home."

But, if you want to make changes to your loan, it might be less about saving on those costs.

"There may be a time in the future when it makes more sense, say, because you need to make changes to the loan rather than chasing a small discount – however absolutely keep in touch with your broker to make sure you aren't missing a bigger opportunity," said Jarrett-Dalton.

Tips for a cheaper interest rate

Number 1

Compare

Take a look at what other interest rates are on the market to see how your own interest rate compares.

Number 2

Speak to your existing lender

You may find that repricing your existing loan is all you need to get a lower rate, rather than going to the effort and cost of refinancing.

Number 3

Speak to your mortgage broker

With interest rate changes, many borrowers aren't able to qualify for the same finance they once could. Speak to you broker about your borrowing power and to see if you are eligible for a better rate elsewhere.

Compare interest rates on the market to see if you should switch to a lower rate.

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