Time to Refinance?

Graeme Salt

They’re falling like dominoes! The past week has seen the majors slashing their interest rates – beginning with CBA dropping its five-year fixed to 4.99 per cent. Other major banks followed suit.


This week, we are seeing the smaller lenders dropping their rates even further so they can stay ahead of the majors.


Home owners are now able to negotiate some of the best interest rates they have ever had. For many, now is the right time to review their home loan and to switch to a lender who is offering a more competitive rate.


But it’s not just because of the drop in interest rates. The other compelling reason why clients are now able to get better rates is because their home is worth significantly more than it was when they bought it.


Let’s take an example of a family who bought their home, say, five years ago for $500,000 and let’s say they borrowed $400,000. As their loan was 80 per cent of the value of their home, they would have been able to get a vanilla interest rate. And let’s say that, in that period, the value of their home has increased to just over $600,000. Even if their loan balance was still $400,000, their total borrowings would now be 67 per cent of the new value of the property.


For a new bank this is a tempting proposition as lending 67 per cent of the value of a property is less risky than lending 80 per cent. As a result, the new bank will offer very competitive rates to tempt the borrower to switch.


Sometimes even, the banks will offer $1,000 to encourage people to switch banks.


Good brokers know which banks are offering the most attractive deals for refinances. The main winners are borrowers who can now get a better rate. Not only are they financially better off, they have also got one over their existing bank. Now that is something to be happy about.


Graeme Salt is a Sydney-based mortgage broker.  For a no-obligations consultation, he can be contacted on 02 9922 5055.