Be prepared for a shock. People who have historically low rates could soon be facing the full force of the 10 RBA cash rate hikes, with an astounding $141 billion of fixed-rate home loans scheduled to expire and then revert to variable rates that are much higher. With rates rising and rates rising, it’s important to think about whether refinancing your home loan would be a wise financial decision. Here are some suggestions and suggestions compiled by our expert brokers to assist you in making informed decisions in this ever-changing interest rate environment.
1. Ensure That The Benefit Is Higher Than The Costs
Refinancing usually involves the payment of closing costs and other charges, and it’s important to make sure that the savings you’ll get through a lower interest or other favorable terms can be sufficient to justify the expense.
Calculating your break-even point is a method of determining if the benefits outweigh the costs. This is the time when refinancing savings are equal to the amount you spent to refinance. To resolve this figure, you can use the following formula:
Break-even Point = total refinancing expenses (Monthly savings on repayments)
Consider, for instance, that the refinancing cost total is $1800. You reduce the monthly mortgage payment by $150 using your new rate of interest. In this scenario, your break-even point would equal one year (1800/150). This means it will take you 12 months to make smaller mortgage payments to recover the expenses of refinancing.
When you reach break-even when you are at break-even, you will see the real savings you can make from refinancing. If you intend to remain in your house beyond the break-even date, refinancing might be a wise choice since you’ll be able to make the most of the savings over the remaining time for your loan.
2. Refinance Multiple Properties To One Lender With Cashback Incentives
Some lenders provide cashback for each security, so refinancing multiple homes to one lender might be an alternative. Apart from the cashback rewards that could be available, consolidating all your loan obligations with a single lender may result in cost savings in the form of reduced interest rates as well as lower costs. In addition, dealing with multiple loan accounts can become difficult, so having all of them in one location will streamline the process and make it easier for you.
Make sure you are aware of the advantages and costs of this choice. It is recommended to weigh the advantages and costs of refinancing each home separately instead of refinancing them in one package in order to determine which option will make the most sensible financial sense for your goals.
It is crucial to remember it is important to note that refinancing more than one property with one lender could require an application procedure that is more complicated and could require additional documentation and proof of your assets, income, and obligations. Therefore, it is strongly advised to work with a seasoned financial advisor or broker who can guide you through the process and help you make the right decision.
Receive personalized advice and guidance for refinancing issues from our knowledgeable brokers. Contact the number 1300 889 743 or complete our no-cost evaluation form online, and we’ll be in touch.
3. Be Cautious When Choosing A Long-Term Fixed Rate
Select the fixed-rate, long-term loan cautiously; it’s not always the most ideal choice. Be aware of your circumstances prior to making a choice.
When to Avoid a Long-Term Fixed-Rate Loan
- When interest rates have already been very high, You may end up having to pay a higher rate than you currently spend on a variable-rate loan over the fixed term.
- If you are planning to sell your house soon, You may have to pay for break charges or exit fees when you finish your fixed-term contract early.
- If you are looking for particular characteristics, Fixed-rate loans rarely offer special features like offset accounts or Redraw facilities, which might not meet your requirements for those who require flexibility in your loan.
4. Consider Future Rate Rises Where Possible
With rates set to rise further, it is essential to understand what economists have to say regarding the rate hikes as well as the current situation with regard to cash rates. The condition economic conditions determine the decision of the RBA to increase or decrease rates for cash. Be aware of the aspects that affect how the RBA conducts its monetary policies. Expert advice and knowledge are useful, but use be cautious and base your decisions on your financial situation.
Methods to mitigate this chance of a rate change are the option of fixed rates or the variable rate loan that comes with the rate lock feature, which allows you to set the pace for a period of duration.
Utilize the interest rate calculator to calculate the impact of rate increases that could affect your payments.
By taking proactive steps to reduce the risk of increasing interest rates, you can reduce the impact on mortgage payments and ensure your financial stability in the long haul.
5. Maintain A Clean History And Make Timely Repayments
The majority of lenders will look over your credit report in refinancing. A poor credit score could hinder your chances of being approved for a loan or with favorable interest rates.
To keep an impeccable credit score, it is crucial to make sure you pay your bills on time. Avoid extending your credit too much and making numerous credit applications. In addition, regularly checking your credit report will assist in identifying any mistakes or fraudulent actions that could impact the credit rating.
Along with evaluating your credit score, lenders will look at your earnings as well as your expenses, work history, and property value when deciding on the best deal to offer you. Maintaining a steady income and a balanced ratio of debt to pay could be beneficial to your loan eligibility as well as the ability to borrow.
6. Opt For A Shorter Term And Higher Repayments If Possible
It’s worth looking at shorter loan terms, even if they will result in more interest. A shorter loan term means that you will pay less in cost of interest over the duration that the loan will last. You may also think about choosing an extended loan period while taking extra payments. This will assist you in repaying the loan more quickly and reduce the cost of interest. Making over the minimum permits you to increase the equity within your house faster. If you’re looking to take advantage of this opportunity, be sure to refinance your loan to one that lets you make additional payments without penalty.
