4 reasons to consider refinancing your loan

Last Thursday’s data from the ABS shows the value of new finance commitments for the purchase of dwellings fell by a record 11.6% over May 2020.

This is the largest single monthly drop in the 18 year series.

But at the same time, more Australians than ever refinanced their home loan in May.Loan

The ABS data revealed that 33,712 Aussies refinanced in May, up 30% from April.

But interestingly, 64% of all refinanced loans were switching lenders, an all-time high.

Analysis by Finder revealed that both the total number and value of refinanced home loans peaked in May 2020.

The total value of these refinanced home loans exceeded $15.1 billion in May, up 26% from the previous high of $12 billion in April.

Loan Refinance

Graham Cooke, insights manager at Finder, said this shows more Australians are taking advantage of rock-bottom rates.

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“As budgets are stretched, a record number of people are deciding to get a better deal on their largest investment.

“While the value of houses may well drop in the next year, the mortgages on them will not,” he said.

“Historically low interest rates and a lack of investor spending are a double whammy to banks, but a boon for mortgage holders,” Cooke said.

For example, on the average loan of $494,462, Finder analysis shows the average standard variable rate from the Big Four banks is 4.04%.

If that rate were to drop 50 basis points to 3.54%, this would mean $36,287 saved over the life of the loan.

The number of refinanced loans jumped 30% in a month, from 25,998 to nearly 33,712 in May.Loan Refinance 2

This number consists of record highs for both external refinance loans, which involve people switching lenders, and internal refinance loans, which involve customers getting a better rate from their current lender.Hands of businessman

External loans reached 21,473 and internal loans reached 12,239.

Despite all-time highs in both internal and external refi categories, 64% of all refinance loans are Australians switching lenders – the largest disparity ever.

Cooke said Aussies are shopping around and it is a good time to be looking for a lower rate.

“With the cash rate at 0.25%, the best home loan rates now start with a 2. If yours does not, it might be time to go home loan shopping.

“Additionally, now is a good time to ask for your bank to go the extra mile. Several lenders are offering to waive fees for new borrowers, and some are even offering extras like offset accounts at no additional cost.”

Loan Refinance 3

Four Reasons to Refinance

According to comparison site Finder, here are some reasons to consider refinancing your loan at the moment

My interest rate is too high.
This is the most straightforward case.
If your interest rate is high, then switching to a better deal will save you a lot of money.
Dropping your rate on a loan of $350,000 from 3.45% to 2.59% would save you $162 a month or $1,944 a year.
I want an offset account. Interest Only Lending Australia
Offset accounts are one of the most useful features on a mortgage.
They allow you to save and spend money like an ordinary transaction account, but every dollar that sits in the account offsets your loan principal.
I want to access some extra cash.
A lot of people refinance a home loan so that they can borrow a bit more money.
They can use the money for investments, to fund a home renovation or to buy a car.
With rates being so low, refinancing to a cheaper rate and borrowing a little more can be quite cost-effective.
It will probably cost you less than taking out a separate car loan.
I’m struggling with mortgage repayments.
It’s very hard to refinance if you’re in financial distress.
This is because you need to apply for a new home loan with a new lender.
The lender will examine your finances and your spending.
If you’re in this situation, you’re better off focusing on getting your debt, income and spending under control.

Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on


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Read more: propertyupdate.com.au