Home Loan Refinancing in 2024: Is It a Good Time to Refinance?
With interest rates rising (along with the cost of everything else!), it’s no wonder so many people are now showing interest in home loan refinancing. The Reserve Bank of Australia (RBA) has spent the past 18 months increasing the official cash rate in a bid to control inflation. From a historic low of 0.10% in early 2022, the cash rate just kept climbing!
By the time Christmas 2023 rolled around, the cash rate was sitting at 4.35% and thousands of Aussie homeowners were paying significantly more for their mortgages than they were back in 2021.
Aussie Homeowners Feeling the Pinch of Rising Interest Rates
As per the latest Finder survey, one in five mortgage holders (that’s over half a million Aussies) admit to struggling with their repayments once their interest rate increased by 3%. Of those affected, about 65% are concerned about defaulting on their home loan payments and around 145,000 said they might be forced to sell their homes in a worst-case scenario.
Despite these shocking statistics, an overwhelming 8.5 out of 10 Australians admit they haven’t taken any kind of action to remedy the situation.
How Much Would an Interest Rate Rise Cost You?
In another alarming statistic, 75% of Australians are unaware of how a cash rate increase would impact their household budget. To paint you a picture, here’s a real-world scenario using the PLS Refinance Home Loan Calculator:
Imagine you had a 30-year home loan with a balance of $650,000 and an interest rate of 2.6%. In this situation, your monthly repayments would be $2,603. But then your 4-year fixed term ends and the loan automatically rolls over onto the lender’s standard variable rate of 6.55%. All of a sudden, your monthly repayments would increase to $4,130. That means you’d be paying an extra $1,527 every month, or over $18,000 more in the first 12 months alone! This example illustrates why home loan refinancing is so important in 2024.
Fortunately, there is some good news. As interest rates have climbed, so have the number of Australians choosing to refinance a home loan (over 450,000 during FY23!). This has generated some serious competition amongst lenders, who have responded with some excellent home loan refinance offers.
To find out how much you could save with a home loan refinance, talk to an experienced mortgage broker.
How Can a Home Loan Refinance Help You in 2024?
Everything will be more expensive in 2024. Our grocery bills have gone up, our power bills have spiked, our insurance bills just keep climbing…and don’t even get me started on the cost of a takeaway coffee! But while these price hikes may be causing a little discomfort, the successive interest rate hikes are likely to trigger the greatest amount of financial stress for the average Australian homeowner.
But by regularly reviewing your home loan, you can check the competitiveness of your current rate against the home loan refinance rates now available. A mortgage broker specialising in home loan refinancing can help you lock in a competitive rate now so you can have peace of mind that you’re not paying too much over the months and even years ahead.
At Professional Lending Solutions, we encourage you to review your home loan annually with the help of a mortgage broker. A routine home loan refinance could save you as much as 1% in a year. And while 1% may not sound like much, it can translate into thousands of dollars of annual savings!
How Does Home Loan Refinancing Work?
When you refinance a home loan, you’re essentially taking out a new loan to pay off your old one. This new loan usually has a lower interest rate, which can save you a lot of money in the long run.
Home loan refinancing allows you to switch from a variable to a fixed interest rate, or vice versa. A variable interest rate will go up and down with the market, while a fixed interest rate will stay the same for the entire life of the loan.
Home loan refinancing also enables you to tap into any equity you may have built up in your property. This equity can be leveraged to get you better home loan refinance rates or cashed out to finance a renovation or new vehicle purchase.
One thing to keep in mind when it comes to refinancing and equity is your Loan to Value Ratio (LVR). The LVR shows how much of the property value you own (or how much equity you have) and what percentage is still covered by the mortgage. You’ll want to make sure you have at least 20% equity to avoid paying the Lenders Mortgage Insurance (LMI) on a home loan refinance.
Chat with a mortgage broker to find out how much equity you have and how it can benefit you when you refinance a home loan.
What are the Benefits of a Home Loan Refinance?
There are significant benefits to home loan refinancing. These include:
Lower Monthly Repayments
Refinancing allows you to lock in a lower interest rate, resulting in reduced monthly mortgage repayments.
Enhanced Financial Flexibility
Transitioning between variable and fixed interest rates can provide greater financial flexibility. It can also shield you from market fluctuations and provide added stability in the face of rising interest rates.
Long-Term Cost Savings
By capitalising on lower home loan refinance rates, you could achieve significant long-term cost savings (improving your overall financial situation).
Access to Home Equity
Home loan refinancing unlocks your ability to access equity in the property. This could help you achieve various financial goals such as debt consolidation or renovation projects.
Reduced Financial Strain
Reduced monthly repayments will help to alleviate financial strain, making mortgage commitments more manageable and minimising the risk of default.
Customised Loan Terms
When you refinance a home loan, you can often tailor the loan terms to suit your evolving financial circumstances. This ensures that your mortgage will continue to align with your future goals.
Debt Consolidation
Accessing equity through home loan refinancing could enable you to consolidate high-interest debts. This will help to streamline your finances and reduce overall interest payments.
Improved Financial Position
Overall, home loan refinancing is a strategic financial move that not only helps improve your current financial situation but also positions you for improved financial health and resilience.
Clearly, there are many benefits to a home loan refinance. However, as with any major financial decisions, it’s a good idea to seek expert advice. A mortgage broker can help you determine if any current home loan refinance offers are right for you.
When Can You Refinance a Home Loan?
The home loan market has seen significant change over the past 18 months, with new, more competitive products being offered constantly. Now is a good time to take advantage of these home loan refinance deals.
Are you trying to decide if you should refinance a home loan? The following situations are usually a good indication that it’s time to talk to a broker about refinancing a home loan:
- When you want to take advantage of ‘new customer’ home loan refinance rates
- When your introductory rate or honeymoon rate ends
- When your fixed term period ends
- When your economic circumstances change
- When you want to access equity in your home
- When you want more flexibility in your home loan
How Long Does It Take to Refinance a Home Loan?
How long it takes to refinance a home loan will usually depend on a few different variables. Mostly it will come down to how long it takes your existing lender to discharge your home loan to your new lender. On average, the total process will take 2-4 weeks (although, in some cases, it can take up to 6 weeks).
Talk to Professional Lending Solutions About Home Loan Refinance Offers
If you’re thinking about refinancing your home loan, NOW is the time to act. But that doesn’t mean you should just rush in and grab the first home loan refinance offer you see. It’s important to work with a professional who understands the current lending landscape.
At Professional Lending Solutions, our brokers are experts in comparing home loan refinance rates. We’ll analyse the various offers available and then make an impartial recommendation based on which home loan refinance offer is best for you. We’ll guide you through the entire process, from start to finish.
Let us help you take advantage of current home loan refinance offers. Get in touch today to discuss your home loan refinancing options with our friendly brokers.
Phil’s journey from banking to mortgage brokering reflects a career driven by a commitment to personalised service and tailored financial solutions. With a distinguished background in banking, including roles at NAB, ANZ and Lloyds TSB Bank in the UK, Phil spent 12 years developing expertise in personal and commercial finance, while also completing a Bachelor of Business (Finance), followed by an MBA majoring in International Business.