Why Is Everyone Refinancing?
Your finance and debt strategy should never be ‘set and forget’. You need to pay regular attention to what lenders are doing with rates and features on their home loan products and get hustling for a better deal.
Just like raising the rent by a certain amount every year on your investment properties, you can increase your cashflow by scoring a better interest rate and more flexible features on your finance.
The best way to do this is by regularly refinancing. Testing the market every year or so will keep you in touch with the best deals available to you, plus help boost your borrowing power and unlock equity in your investments to keep building your property portfolio.
Don’t pay the lazy tax
The historically low interest rates we have been paying over the last decade have lulled a lot of Aussies into complacency. Sure, we don’t have to worry about the outrageous rates that our parents were paying back in the day, but that doesn’t mean we should just keep paying what the banks decide.
Banks make money from charging you interest. Their business models rely on attracting new customers and retaining old ones. If you’ve been with one bank for a long time, that bank is not going to suddenly offer you the very best deal they have. No, they save those deals for the refinancers they’re trying to lure over from their competitors.
So, assume that there are better deals out there. Shop around online or talk to your mortgage broker or financial strategist. A better deal could save you hundreds, or even thousands, a year.
And you don’t necessarily have to switch. If you show your current lender that you can get a better deal elsewhere and are serious about leaving them, that’s where the retention part of their business model comes in and they will often come to the party with a better rate.
Everyone’s getting on board
Right now, NSW, VIC and QLD are all experiencing record refinancing levels. There are now more than 11,000 refinances lodged monthly in NSW, an increase of 15%, while in Victoria it’s 11,500 (3%) and 5000 in Queensland (12%).
ABS figures showed refinanced loans hit $16 billion in value last month, up more than $1.3 billion from the previous month.
Some believe the rush is due to people panicking over the likelihood of an imminent rate rise by the RBA, but anyone who follows b Invested founder Nathan Birch will know that he thinks rates can still fall into the negatives.
Different rhythms for fixed and variable
We’ve heard a lot about banks raising rates on their own lately, but that has most often been for fixed term products of two years or more. A recent RateCity study found that 49 Aussie lenders actually cut their variable rates over the past couple of months.
In an environment like this, it doesn’t make a lot of sense to pay extra for a fixed rate and then lock yourself in for a couple of years. Imagine if rates went negative and you were suddenly locked in to wasting unnecessary money every year. You wouldn’t be happy. With rolling lockdowns and people struggling for money around Australia, rates aren’t likely to go up anytime soon.
Compound interest means any money you save gets boosted. And if you have a multiple property portfolio, savings are compounded even further.
Imagine you had 10 properties. And in addition to raising the rent by $10 a week, per property, per year, you also saved $1000 a year on each property by refinancing or getting a better rate from your existing banks. That’s an extra $15,000 a year without having to do much.
If you need help making sense of all the loan options out there, or want more information on how refinancing works and whether it’s right for you, reach out to the team at b Invested on 1300 367 925 or at email@example.com