With interest rates falling this year, more Australians are taking a fresh look at their home loans. In fact, close to 100,000 borrowers refinanced in the June quarter alone, that’s 21% higher than the same time last year. Put simply, more than 1,000 loans are being refinanced every day.
So, what’s driving this refinancing surge – and could it be worth considering for you too?
To reduce their interest rate or loan term
For many borrowers, the primary motivator to refinance is the potential to secure a lower interest rate with another lender.
With three cash rate cuts totalling 0.75% so far this year, there is fierce competition among home loan providers to lock in borrowers. Many lenders have reduced interest rates in the hope of getting more borrowers through the door, while holding onto existing ones.
Some borrowers are also choosing to refinance into shorter loan terms. If your income has grown or you’re in a position to pay off your loan sooner, this can reduce the overall interest paid across the life of the loan.
To access equity
Many borrowers choose to refinance in order to access the equity in their property. Equity is the difference between what you owe your lender and the current market value of your property.
With national home values on the rise for eight consecutive months and Australian house prices at a record national average, you may have more equity built up than you realise.
Refinancing allows you to tap into that equity, which can then be used for renovations, an investment property, or even helping your kids with education costs.
To access additional loan features
Some borrowers refinance to access loan features such as offset accounts or redraw facilities, which can help reduce interest while giving you flexibility with your repayments.
Others switch between fixed and variable rates, depending on what suits their situation. With recent rate cuts, some banks have lowered fixed rates, making them attractive to borrowers who want certainty over repayments.
To consolidate debt
For those with multiple different types of debt, such as a car loan, personal loan, home loan and credit card debt, refinancing to consolidate debt may be worthwhile.
Rolling all your debts into a loan with a lower interest rate and one repayment can be beneficial, but there are risks involved. It’s important to speak to a finance professional and weigh up your options before deciding whether debt consolidation is right for you.
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