New data released on 13 January 2023 by the Australian Bureau of Statistics shows the value of owner-occupier refinancing between lenders rose to 9.1%, to $13.4 billion, in November 2022.
There’s a trend that the number of people refinancing in 2023 will increase. However, refinancing is not something you do on a whim. It has huge financial repercussions, and many Aussies fear refinancing for the following reasons.
Why Are People Afraid To Refinance In 2023?
1. Interest Rates Will Rise
The Fear: Refinancing is off the table because I’m facing high interest rates on my home loan.
Explanation: The Reserve Bank of Australia (RBA) is expected to announce more cash rate hikes in the first few months of 2023, so lenders will probably further increase interest rates on their products. This is great news for savings accounts but bad news for those seeking a loan. People who are coming off low fixed-rate home loans will revert to a high variable rate.
Solution: It’s difficult to pinpoint when the RBA will stop increasing the cash rate, but it’s unlikely to happen until inflation is under control. Interest rates on your home loans will probably rise. But looking at your rates is just one part of the refinance equation.
Our mortgage brokers will help you find a home loan with features that can reduce the interest you pay over the life of your mortgage.
2. It’s A Hassle To Refinance
The Fear: Refinancing is like taking out a new home loan. It can be complex and takes too much effort.
Explanation: Many borrowers do not have experience refinancing and stay with their current lenders for a long time. Each step of the refinancing process can take a few days:
- Researching, comparing and listing available lenders
- Choosing the right lender.
- Talking to your current lender to discharge the mortgage.
- Talking to the new lender and submitting the required documents.
- The new lender assessing your application and finally giving the greenlight.
Solution: Get the right mortgage broker to do the heavy lifting for you. At Home Loan Experts, we do all the legwork to find the right home loan options and liaise with the lender for approval. Call us on 1300 889 743 or enquire for free online, and we can start your refinancing process immediately!
3. Not Enough Equity
The Fear: I need more equity than what is in my property to refinance.
Explanation: Most lenders require a homeowner to have at least 20% equity in their property to refinance. With property prices falling in Australia, the value of their homes might have also decreased since they bought it.
Solution: The minimum equity required when refinancing is 5%. However, in that case, since you would be borrowing more than 80% of the property value, you would probably have to pay Lenders Mortgage Insurance (LMI). If your equity is low, you could refinance your home loan with a guarantor loan instead. Having a guarantor will help boost your borrowing capacity, as they take the responsibility of repaying your loan if you default.
You could also look for specialist lenders that refinance mortgages even for borrowers with low home equity.
4. Refinancing Costs Are Too High
The Fear: Lenders charge fees for refinancing, which can inflate my loan balance.
Explanation: Refinancing is not free. There are costs involved. Discharge fees can cost over $150. There are costs associated with applying for a new mortgage, like registration fees, application fees, valuation fees and even settlement fees.
Solution: Lenders are offering refinance cashbacks of over $4,000. You can use the cashback to cover your costs of refinancing. Over the long term, the refinancing costs can be worth it.
5. Longer Loan Term
The Fear: It will restart my home loan term to 30 years.
Explanation: You’ve already had your home loan for five years, and when you refinance, the term will reset to 30 years.
Solution: You can refinance into a new, shorter-term loan that almost matches the remaining time on your current mortgage. You can also make repayments above the minimum, so if you have a 30-year term, you can pay it off in 20 years.
6. Lowers Your Credit Score Leaves A Mark On Your Credit File
The Fear: If I shop around with lenders, it will count as multiple enquiries on my credit file.
Explanation: Too many enquiries on your credit file can lower your credit score and your chances of approval. More than two enquiries in six months can significantly limit the number of lenders who will approve your loan.
Solution: Refinance with only one lender at a time. Use the expert help of a mortgage broker to refinance with the right lender at the right time.
Have The Experts On Your Side!
You might not want to refinance right now because it’s too much hassle, and you’re afraid you’d be in a worse position with an extended loan term. But the decision to refinance should not be based on rates alone. Other factors to consider are your credit score and how long you plan to stay in your home.
At Home Loan Experts, our mortgage brokers will be with you throughout the refinancing process. We will narrow down the possibilities and help you find the refinance options that will put you in a better financial position. Call us on 1300 889 743 or enquire for free online today.