Refinancing is booming as mortgage stress grows
The number of Australian households who are refinancing their home loans to a new lender and a better deal is growing.
“There was a lot more refinance” in 2016, compared with previous years said mortgage expert Will Foster, and this trend will continue in 2017. Consumers are becoming better educated about alternative mortgages that are competing for their attention said Mr Foster.
Borrowers are no longer “happy with what their incumbent banks are doing,” Mr Foster told Mortgage Business,
He added that based on his experience he believed this trend would continue throughout 2017.
What is refinancing?
Refinancing means using a new loan to pay out and replace an existing loan, effectively switching loans. The new loan takes over the mortgage on the property when the old loan is paid out. Refinancing has becoming easier and cheaper as a result of government reforms to ban most home loan exit fees.
Refinancing is also often used by borrowers to consolidate their other debts, like large credit card and personal loan balances, into a new mortgage and pay it all off with one payment and one interest rate.
Why are borrowers refinancing?
The Reserve Bank of Australia has left official interest rates steady for the last six months but lenders have been raising retail home loan interest rates themselves, in defiance of the RBA. More than thirty lenders have raised mortgage rates in the last month. Since last year lenders have been raising their fixed home loan rates. Now increasing numbers of lenders are moving their popular variable rate home loan rates up. There have been more than 100 variable home loan rate hikes already in 2017. Some lenders have lifted home loan rates by more than 0.5 percentage points.
These rate increases hit existing customers hard and are very unpopular. Some borrowers may be getting rate increase notices from their lender and deciding that they can find a better deal elsewhere.
Another reason for the increasing numbers of people wanting to switch loans and rejig their finances maybe related to the increasing number of Australians falling behind on their mortgage repayments. Mortgage stress is now at a three year high and is expected to spread to even more households, despite record low interest rates.
The numbers of borrowers falling behind with their home loan repayments has record new highs in Western Australia, Tasmania and the Northern Territory reported ratings agency Moody’s.
People wanting to refinance need to be up to date with their repayments. Some lenders will accept a refinance from a mortgage in arrears but the borrower may pay more in risk loading.
How to find a good refinance deal
First, before looking for a new home loan, find out how much you could save by refinancing by using the free InfoChoice Refinancing Calculator.
Most home loan products on offer from Australian lenders are available for refinancers. Lenders generally favour refinancing customers.
You can compare all the home loans on offer from Australia’s major lenders here.