By Guest Blogger, Louisa Sanghera, Principal Broker,
Zippy Financial - www.zippyfinance.com.au
With interest rates the lowest they’ve ever been, is it worthwhile considering refinancing your home loan before the year is out? If you’re keen to potentially save thousands of dollars, then the answer is yes!
Without a doubt, 2020 has been one of the strangest years the mortgage industry has ever experienced. I don’t say this lightly, having worked in finance for more than 30 years – I can safely say this has been one of the most unusual, stressful and frustrating years for our clients.
Obviously, this is due to the pandemic, which has impacted lenders in a big way. In some cases, it has taken banks six months to settle some of our clients’ loans.
These are fairly simple, straightforward loans that would have settled in 4-6 weeks prior to the pandemic. But the banks, being over-burdened and under-staffed, ended up over-promising and under-delivering.
This isn’t new to the pandemic, though. I truly don’t think (some) of the major banks really do put customers first; we have had so many instances where clients have presented strong applications who earn great money, but because it doesn’t suit the banks’ strict policies, they say no to the deal for their own loyal clients. The clients then come to us to try and help them find a mortgage.
Also keep in mind that the Big 4 are currently only passing on rate reductions to new clients only, rather than rewarding their existing customers (have they not learnt anything from the Royal Commission?!)
Why you should reconsider your loyalty to your bank or lender
If you have a mortgage you should regularly review the loan, you’re on at least every 12 months, or better still, use a broker who will keep an eye on your mortgage for you. A good broker will regularly keep repricing your mortgage to keep the rate low; a really good broker will have a diary note or task set to review your rates intermittently.
Right now, there is the potential to save a huge amount of money if you refinance.
However, if you’re being lured by one of the big banks’ and their promise on an ultra-low fixed rate – I would be careful. I would be very wary of fixing your interest rate right now and here’s why.
First of all, there are often a number of restrictions. For instance, if you want to make any extra payments to get ahead on your loan, this is often capped at just $10,000 per year.
Also, a number of banks are offering a cheap fixed rate of 1.99% for four years, but four years is a long time to fix your home loan in place. You should consider if you really want to tie yourselves in for that long?
But this is the no.1 reason to be cautious with a fixed rate home loan…
Once you lock into a fixed rate loan, you can’t break it – unless you’re prepared to potentially pay substantial break costs. These can apply if you need to end the loan for any reason at all: getting divorced, selling the property, moving unexpectedly to care for a sick relative, relocating overseas… none of these reasons will convince a bank or lender to waive your fixed loan break fees.
They’re calculated based on the “cost” to the bank of losing your business (even if you break that particular loan, but stay with the same bank on a variable rate mortgage) so they really need to be considered before you fix.
In my three decades in the finance industry, I’ve seen more people lose on a fixed rate than win. Consider it this way: the bank never sets a fixed rate product thinking they are going to lose money. Rates are forecast to stay low for many years and could even go lower; I have clients who have only fixed their rates a few months ago at 2.29%, who are now kicking themselves that they didn’t wait for the current 1.99% rates.
That said, if you’re looking for comfort and security in terms of knowing what your repayments are going to be each month, then a fixed rate loan can be a good option.
They can also be really valuable for investors, who benefit from knowing what their fixed costs are every month so they can ‘set and forget’ their investment budget.
Whether you want to fix your rate or not, the fact remains that by refinancing your home loan right now, you have the chance to save thousands of dollars on your home loan. There are a number of banks offering upfront cash incentives of between $2,000 and $4,000, not to mention the savings to be made when your monthly repayments are lower.
If you want to talk through the options, advantages and potential disadvantages of fixed verse variable rate loans and what may be best for you, seek the help of a professional mortgage broker: we can give you all the information you need to make an informed decision that keeps more money in your pocket, rather than the banks’.
Louisa Sanghera
Director and Principal Award-Winning mortgage broker at Zippy Financial
Louisa created Zippy Financial after a 25-year career in banking, with the goal of using her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients grow their wealth through smart property financing. Whether you are looking to buy your first home, re-finance or build your property investment portfolio, Louisa and her team of experienced brokers can help guide you through the challenging maze of finding & securing exactly the right loan for you.
M: 0414083522 or 1300 855 022
E: louisa@zippyfinancial.com.au
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