• Angelique

Why right now is the perfect time to refinance

Key points:

- Low-interest rates

- Rates to stay low

- Plenty of lenders offering rates in the 2s

- Can get a better product with an offset account

- Free up cash if you need it

- Consolidate debt

As Australia slowly reopens for business on the back of the unprecedented economic shutdown due to COVID-19, the opportunity for borrowers has never been so good.

The Reserve Bank of Australia (RBA) has been very proactive during the current crisis and they have done everything in their power to help the situation for borrowers. Most notably, RBA Governor Phillip Lowe and the board have slashed the official cash rate to a record low of 0.25 per cent. Lenders have followed suit, lowering mortgage rates to all time lows, making it the perfect time to be looking to refinance your current home loan.

Refinancing your home loan effectively means replacing your current home loan with a new one. The most obvious reason to do this is to access lower interest rates which help reduce your monthly repayments. In the current environment, we’re seeing lenders offering rates in the low 2s, which is the lowest level we’ve seen in the last 70 years.

Aside from simply lowering your payments, there are also a number of other reasons you should be considering refinancing at the moment.

The first thing to realise is that you are generally not going to be rewarded by your lender for sticking with them over time. It’s actually quite the opposite. More often than not, those borrowers who haven’t reviewed their loan will often be paying higher interest rates than they need to be.

Lenders need to attract new business, so new loans can at times, get very attractive rates. This by itself is a good reason to refinance or at the very least, review your loan with your current lender.

While the interest rate is important when you refinance you also get the opportunity to access better loan products. Banks and lenders have a range of products that can really help reduce your payments and save you tens and thousands of dollars over the lifetime of the loan.

The most obvious thing most borrowers should consider is a loan product with a 100 per cent offset account attached. An offset account is a transaction account, that has the additional benefit of saving you interest by either parking your spare cash (i.e. savings), or even just using it as your day-to-day account.

One of the other key reasons to refinance might be to free up equity. As your home or investment property gain value over the years, you build up additional equity. A way to access this equity and transfer that into cash is to refinance.

The current economic shutdown has highlighted just how important it is to have spare cash, so refinancing to do that is something everyone should be considering. Particularly if you live on the east coast, where house prices have seen significant growth over the last 10 years.

When you free up that equity, you also have the ability to leave it sitting in an offset account - just for a rainy day. It’s there if you need it for any personal expenses or emergencies, or even for investment opportunities.

Finally, you can refinance in a bid to help reduce and consolidate some of your other debts. Debt from things such as credit cards or car loans, often attract high levels of interest and weigh heavily on your cash flows.

By rolling this debt over into your home loan, you will be able to go from paying double-digit interest rates to the lower rates you can get on a home loan. It could end up saving you thousands of dollars a month.

RBA Governor Lowe has made it clear that rates will stay low ‘for some years, but not forever’, so it really is the perfect time to consider refinancing.

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