Refinancing Is on the Rise

The latest Mortgage and Finance Association of Australia (MFAA) survey revealed that 99% of brokers helped clients refinance within the last six months. This is a clear sign that refinancing is no longer out of reach for many borrowers. Almost all clients who refinanced were also able to secure a discount, proving that better deals are on the table.

When you refinance, you can potentially reduce your repayments, unlock equity, or simply move to a loan that better suits your needs. With lenders becoming more flexible, now is a prime opportunity to consider refinancing.

Why More Borrowers Can Refinance Now

So, why is refinancing becoming more accessible? The biggest reason is the shift in economic conditions. Easing inflation and lower interest rates have opened the door for more borrowers to refinance.

At the same time, many homeowners are seeking help for the first time. In fact, 92% of brokers reported working with clients new to refinancing. This shows that more people are recognising the value of professional advice when it comes to navigating the refinance process.

Borrower Confidence Is Growing

Another positive trend is borrower confidence. Brokers observed that clients are starting to feel more optimistic about their finances now that refinance opportunities are available. While nearly half of clients remain “neutral,” more are showing a brighter outlook compared to earlier this year.

This shift highlights the impact of refinancing—by lowering repayments or securing better rates, households gain much-needed breathing room, which boosts financial confidence.

Brokers Are Helping Beyond Refinancing

While the chance to refinance has improved, challenges like cost-of-living pressures and job security concerns remain. That’s why 80% of brokers are now also supporting clients with hardship options.

Brokers aren’t just there to help you refinance; they’re also a trusted guide if financial stress arises. Whether you’re aiming to refinance to a more affordable loan or explore hardship support, having a broker makes the process easier.

Job Security and Housing Supply Concerns

Even though refinancing is now within reach for many, some borrowers remain cautious. Concerns about job security jumped from 4.8% earlier this year to 18.3%, while housing supply shortages continue to add pressure.

This means that while refinance opportunities are improving, broader issues like employment and housing availability still shape how confident borrowers feel about their future.

The key message is this: if you’ve been unable to refinance before, now may be the right time to take another look. With more lenders open to applications and brokers guiding clients through the refinance process, breaking free from mortgage prison is finally possible.

Contact us today to explore how we can help you refinance your home loan and secure a deal that works better for you.

The post Refinance and Break Free: How Borrowers Are Escaping Mortgage Prison first appeared on Mortgage Brokers Brisbane Gold Coast.

Refinancing Activity Hits New Highs

According to the Australian Bureau of Statistics, external owner-occupier refinancing jumped by 12% in the final quarter of 2024 compared to the previous quarter. This increase reflects a broader shift in borrower behaviour, as homeowners seek to reduce monthly repayments and escape higher interest rates locked in during previous loan terms.

This surge is supported by positive sentiment: over 80% of borrowers now feel either optimistic or neutral about their financial outlook, according to research from the Mortgage & Finance Association of Australia (MFAA).

Why Are More People Refinancing Now?

Several factors are driving the refinancing wave:

• RBA rate movements: Earlier this year, the Reserve Bank of Australia paused and then slightly eased the cash rate, which signalled to many borrowers that now is a good time to act.
• Lower refinancing hurdles: Lenders can now apply a reduced 1% serviceability buffer (instead of the standard 3%) for simple, like-for-like refinances. This regulatory change makes it easier for some borrowers to qualify for a refinance.
• Desire to beat the “loyalty tax”: Borrowers are realising that staying with the same lender doesn’t always pay off. New customers often receive more competitive rates than existing ones.

Mortgage Stress Is Easing – But Not for Everyone

While mortgage stress has decreased—falling from 49% to 24% of brokers reporting high levels of client stress over the past year—it hasn’t disappeared. Some borrowers, despite steady income and good repayment history, still struggle to refinance due to tight lending standards.

These borrowers often find themselves in “mortgage prison,” where they can’t qualify for a new loan even though it could lower their repayments. That’s why understanding your options—and getting professional advice—is more important than ever.

Mortgage Brokers Are in High Demand

With lending conditions varying across banks and non-bank lenders, navigating the refinancing process can be overwhelming. This is where mortgage brokers play a vital role. They can:

• Compare interest rates and loan features across multiple lenders
• Assess borrowing capacity under new rules
• Advocate for better deals with current or new lenders
• Help first-time refinancers understand the process

As the market becomes more complex, more borrowers are seeking out broker support to make informed decisions.

Is Now the Right Time to Refinance?

Refinancing isn’t for everyone, but for many Australians, it’s a smart financial move—especially in today’s rate environment. If your current home loan is more than two years old or your financial circumstances have changed, it may be worth reviewing your loan with the help of a professional.

By understanding the current trends and taking advantage of the latest lending changes, you can reduce your repayments, gain more flexibility, and regain control of your financial future.

Whether your fixed rate is ending soon, your circumstances have changed, or you simply want to see if there’s a better deal out there—we’re here to help.

Book your free home loan review today and let’s see what refinancing options are available for you.

The post Why Refinancing Is More Popular Than Ever in Australia first appeared on Mortgage Brokers Brisbane Gold Coast.

Major lenders, including Westpac, have reported a sharp increase in refinancing inquiries. Over the past quarter, Westpac recorded a 45% rise in borrowers switching their home loans to the bank. This follows findings from Westpac’s Home Ownership Report, which indicated that 30% of homeowners considered refinancing in the December quarter.

The trend is further confirmed by Australian Bureau of Statistics (ABS) data, which shows that 61,749 home loans were refinanced between lenders in the December quarter. This figure represents a 12% increase from the previous quarter and a 1.5% rise compared to the previous year.

Why Homeowners Are Refinancing

The Finance Brokers Association of Australia (FBAA) recently revealed that more than half of Australian mortgagor’s plan to refinance in the next two years, hoping to take advantage of lower rates. As the cost of living remains a key concern, borrowers are becoming more proactive in securing the most competitive mortgage options available.

The use of technology in refinancing is also gaining traction. According to Westpac’s research, 79% of mortgage holders believe the home loan application process needs to be more digital, while 82% of past and current refinancers want a quicker and more streamlined experience. To address this demand, Westpac launched a direct-only refinancing offer through its website and banking app, featuring a competitive 5.84% per annum rate for owner-occupiers with up to a 70% loan-to-value ratio (LVR).

The Role of Brokers and Technology

While digital refinancing options are growing, many borrowers still prefer working with brokers for their expertise and personalized guidance. More brokers are leveraging technology, including loan pricing tools, to help clients secure the most competitive rates and identify refinancing opportunities.

Banks and lenders are also investing in digital advancements, with reports highlighting the increasing role of artificial intelligence (AI) in streamlining mortgage applications. However, despite the recent rate cut, some lenders have yet to pass on the full savings to customers, meaning many homeowners could still be paying higher interest rates than necessary.

Growing Interest in Property Market Entry

Beyond refinancing, brokers are witnessing an uptick in pre-approvals as buyers look to capitalize on falling rates and enter the property market. With competition among lenders intensifying, homeowners and prospective buyers alike are encouraged to explore their options and ensure they are securing the best possible mortgage deals.

If you’re considering refinancing, now is a great time to review your mortgage and take advantage of the evolving lending landscape. Whether through digital platforms or expert guidance from a broker, finding a lower rate could lead to significant long-term savings.

Contact us today to explore your refinancing options and secure a better rate.

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It’s Been at Least Two Years Since You Took Out Your Loan

If you haven’t reviewed your mortgage in the past couple of years, you might be paying more than you need to. Lenders regularly update their credit policies, interest rates, and loan products, often introducing better deals to attract new borrowers. Meanwhile, the Reserve Bank’s rate decisions and economic shifts can also impact borrowing conditions.

By refinancing, you could secure a more competitive rate, which may help reduce your repayments and save you thousands over time. Plus, some lenders offer cashback incentives for switching, making it even more worthwhile to explore your options.

Your Financial Situation Has Changed

Life is constantly evolving—your income, expenses, and financial goals today may be very different from when you first took out your mortgage. Whether you’ve received a salary increase, started a family, taken on new financial commitments, or changed jobs, it’s essential that your loan reflects your current needs.

For example:

• If your income has increased, you may want a loan with flexible repayment options to pay off your mortgage faster.
• If your expenses have grown, a lower rate or an offset account could help manage cash flow more effectively.
• If you’ve experienced financial hardship, refinancing could help by extending your loan term and reducing your monthly repayments.

Your Fixed-Rate Period Is Ending

Many borrowers lock in fixed rates for a sense of security, but once that term expires, they often find themselves automatically rolled onto a lender’s standard variable rate—which may be significantly higher than market rates.

Before this happens, it’s a good idea to explore your refinancing options. By switching to a more competitive variable or fixed-rate loan, you could maintain lower repayments and avoid unnecessary interest costs.

You’ve Built Up Equity in Your Property

Equity is the difference between your property’s market value and your outstanding loan balance. As you pay down your mortgage and your home appreciates in value, your equity position strengthens.

A higher equity percentage can make you eligible for loans with lower interest rates, fewer fees, and better features. Some lenders also waive lenders mortgage insurance (LMI) if your loan-to-value ratio (LVR) is below a certain threshold, helping you save on upfront costs.

If your current lender isn’t offering better terms despite your improved equity position, refinancing with a different lender could unlock more competitive options.

You Want to Access Your Equity

If you’re planning to buy an investment property, renovate your home, or fund a major expense, refinancing can allow you to cash out a portion of your home equity. This means you can borrow against the value of your property to secure additional funds without selling your home.

However, it’s essential to approach equity cash-out responsibly. Working with a mortgage broker can help you assess whether refinancing is the right move and ensure you’re using your equity strategically.

Final Thoughts?

Refinancing can be a smart financial move, but it’s not a one-size-fits-all solution. It’s important to consider factors like break costs, loan fees, and your long-term financial goals before making a decision.

If you’re wondering whether refinancing is right for you, we’re here to help. Get in touch today for a free loan review—we’ll assess your options and guide you toward a mortgage that aligns with your needs.

The post Is Your Mortgage Still the Best Fit? 5 Signs It’s Time to Refinance first appeared on Mortgage Brokers Brisbane Gold Coast.

Review Your Mortgage

With the Reserve Bank of Australia (RBA) keeping rates on hold, interest rates have stabilized, and some fixed rates have even dropped slightly for owner-occupiers. If you’re on a variable mortgage, now might be a good time to review your loan. Locking in a fixed rate could shield you from potential market changes next year. Comparing your current rate with the latest offerings from various lenders can help you determine if refinancing to a better deal is beneficial​.

Consider Refinancing

Although external refinancing activity has declined by 24% this year, internal refinancing—where you stay with your current lender but negotiate a better deal—has grown by 14%. If you’re thinking about refinancing, shop around for cashback offers or more competitive rates that could save you money over time. Acting now could also help you secure a lower rate before any market changes take effect next year.

Maximize Your Borrowing Power

If you’re planning to buy a home in 2025, use the final months of 2024 to improve your financial profile. Reducing your existing debts, boosting your credit score, and increasing your savings for a deposit will all help strengthen your borrowing power​. A higher deposit can also lower your loan-to-value ratio, unlocking better interest rates and reducing or even eliminating the need for lender mortgage insurance (LMI).

Explore Government Assistance

For first-home buyers, government schemes like the Home Guarantee Scheme (HGS) could make a significant difference. With property affordability being a challenge, the HGS has helped many Australians enter the market with a smaller deposit. If you’re a first-home buyer, this could be the time to investigate your eligibility and take advantage of these programs before market conditions shift in the new year.

Secure a Property Before Buyer Demand Surges

While the property market has stabilized, experts are predicting a surge in buyer demand as interest rates are expected to decrease in 2025. Securing a loan or property now could help you avoid fierce competition and higher prices next year. Acting before the anticipated interest rate cuts can give you a competitive advantage, locking in favorable terms before the market heats up again.

Final Thoughts

Whether you’re considering refinancing, buying your first home, or preparing for the market conditions in 2025, the last few months of 2024 offer key opportunities. Acting now allows you to take advantage of favorable interest rates, government schemes, and strategic refinancing options. By planning ahead, you’ll be better positioned for the shifts expected in the new year, ensuring your financial stability and growth.

Make sure to review your options carefully and take action before the year ends to make the most of current market conditions.

Need assistance with your financial planning or mortgage options? We’re here to help! Contact us today to discuss your unique situation and find the best solutions tailored for you. Don’t hesitate—let’s work together to secure your financial future before 2025!

The post Essential Year-End Financial Moves for Homeowners and Buyers first appeared on Mortgage Brokers Brisbane Gold Coast.

Refinancing: A Fresh Start for Your Loans

Refinancing is like hitting the reset button on your loans. It involves replacing an existing loan with a new one, often offering better terms, lower interest rates, or a more suitable repayment period. If you’re a homeowner, mortgage refinancing can be a game-changer, reducing your monthly payments, cutting interest costs, or even reshaping your loan structure to align with your financial goals.

Debt Consolidation: Simplify and Conquer

Tired of juggling multiple debts, like credit cards and personal loans? Debt consolidation comes to the rescue. It’s the process of merging several debts into a single loan. This approach streamlines your repayment process and can potentially offer better terms, such as lower interest rates or extended repayment periods.

Key Differences between Refinancing and Debt Consolidation

1. Scope of Debt: Refinancing focuses on a single loan, like a mortgage or personal loan, while debt consolidation covers multiple debts, often unsecured, such as credit cards or personal loans.
2. Restructuring vs. Consolidation: Refinancing aims to restructure the terms of an existing loan, while debt consolidation consolidates multiple debts into a single loan or payment plan.
3. Interest Considerations: Refinancing targets securing a lower interest rate than the initial loan, potentially saving you money on interest payments. In contrast, debt consolidation’s interest rate depends on factors like your creditworthiness and negotiations with the new lender.

Considerations and Potential Drawbacks

1. Extended Repayment Period: Both refinancing and debt consolidation may extend the repayment period, leading to lower monthly payments but possibly higher interest costs over time. Evaluate the impact on your financial goals and the total loan cost.
2. Risk of Accumulating New Debt: Consolidating debts can tempt some individuals to accumulate new debt while repaying the consolidated loan, increasing the overall debt burden. Responsible spending habits are crucial to avoid falling back into a debt cycle.
3. Impact on Credit Score: Both approaches can affect your credit score. While refinancing and debt consolidation may initially cause a temporary dip, managing the new loan responsibly can lead to positive credit score improvements.

Choosing between refinancing and debt consolidation isn’t a one-size-fits-all decision. Each approach has its own benefits and considerations, from interest rates and repayment periods to potential credit score impacts. The key is to assess your unique financial situation, goals, and the terms offered by lenders. Our team of experts is here to guide you through these finance options and help you make the best decision for your specific needs, paving the way to financial freedom. Take the first step towards a brighter future by contacting us today.

The post Unlocking Financial Freedom: Refinancing vs. Debt Consolidation – Which Path is Right for You? first appeared on Mortgage Brokers Brisbane Gold Coast.

The Appeal of Investing in Property

As the great Australian dream, owning an investment property has become increasingly popular for many homeowners seeking financial growth. The exciting news is that you don’t have to sell your home to access the equity you’ve built up. By harnessing your existing home’s equity, you can secure the funds needed to invest in real estate without providing a cash deposit upfront. This clever approach has been widely embraced by savvy investors, with some even financing the entire investment property purchase through this strategy.

Understanding the Equity Utilization Process

When it comes to purchasing an investment property, you can’t leverage the entire equity you’ve accumulated in your family home. Typically, lenders allow you to borrow up to 80% of your home’s value (known as the loan-to-value ratio or LVR), subject to assessment and serviceability.

Calculating Your Available Equity

Let’s consider an example. Say your home is currently valued at $850,000, and you still have a loan outstanding of $550,000. Based on the 80% LVR rule, you would have $130,000 in available equity:

• Property value: $850,000
• 80% LVR: $680,000
• Debt owing: $550,000
• Available equity: $130,000

With $130,000 in available home equity, you can use it as security to cover the deposit (typically 20% or less) and other associated costs for your investment property purchase. As long as you meet serviceability and lending guidelines, you could consider investing in an approximately $650,000 property.

Important Considerations for Your Property Investment

1. Property Valuation and Expectations: Lenders often value properties conservatively, so keep in mind that the available equity in your home may be lower than expected, which could impact your purchase price.
2. Loan-to-Value Ratio (LVR) and Lenders’ Mortgage Insurance (LMI): Maintaining an LVR below 80% helps you avoid the payment of LMI. However, there are situations where paying LMI for the investment property could enable you to purchase a higher-priced or better-quality property. To make an informed decision, it’s best to consult with professionals such as advisers, accountants, and finance experts who can guide you on the potential benefits and consequences.

Factors Affecting Your Borrowing Capacity

Lenders consider several crucial factors when assessing your borrowing capacity for property investment, including:

• Your credit score
• Your income, existing loans, and debts, along with the serviceability of any shortfall between rental income and investment property costs
• The loan-to-value ratio (LVR)
• Rental income potential
• Your age and retirement exit strategy
• Dependents and other costs that may impact your serviceability

Before embarking on your property investment journey, we highly recommend booking an appointment with us to assess your borrowing capacity. and determine the optimal timing for purchasing an investment property. By strategically utilizing available equity, you can take significant steps toward achieving your financial goals while still paying off your mortgage and moving closer to owning your dream home. Embrace the possibilities that property investment can bring and set yourself on a path to financial prosperity.

The post Utilizing Equity to Invest in Property: A Guide for Homeowners first appeared on Mortgage Brokers Brisbane Gold Coast.

Imagine a world where your loan works tirelessly to serve your financial goals. Enter refinancing, a magical process that replaces your existing loan with one that offers superior terms. With the potential to secure a lower interest rate, shorten your repayment period, or switch to a fixed interest rate, refinancing is a strategic move that can transform your financial landscape. However, like any important decision, it’s crucial to navigate the process and assess the potential risks before taking the plunge.

Let’s explore the compelling reasons why refinancing is an option you should seriously consider:

Harness Lower Interest Rates: If interest rates have dropped since you first obtained your loan, refinancing presents a golden opportunity to take advantage of these reduced rates. By doing so, you’ll save a significant amount on interest payments throughout the life of your loan. It’s an opportunity too good to ignore.

Accelerate Debt Repayment: Time is of the essence when it comes to freeing yourself from the shackles of debt. Refinancing allows you to shorten your repayment period, helping you pay off your debt faster while reaping long-term interest savings. Get on the fast track to financial liberation.

Relief through Reduced Monthly Payments: If your monthly loan payments have become overwhelming, refinancing can be a lifeline. By extending the repayment period or securing a lower interest rate, you’ll experience the welcome relief of reduced monthly obligations. Regain control of your budget and breathe easier.

Find Stability in Fixed Interest Rates: Bid farewell to uncertainty and embrace stability with open arms. If you’re currently juggling a variable interest rate loan, refinancing enables you to switch to a fixed interest rate. Enjoy the predictability and peace of mind that come with knowing your monthly payments will remain constant. It’s a game-changer.

Navigating the Refinancing Journey: Your Path to Success

Embarking on the refinancing journey is an exhilarating endeavor. Here’s your step-by-step guide to navigate the process with confidence:

Evaluate Your Current Loan: Before you set sail, familiarize yourself with the terms of your existing loan. Understand the interest rate, repayment period, and any potential fees or penalties for early repayment. This knowledge will serve as your compass, guiding you toward the best course of action.

Shop Around for Rates: Cast your net wide and explore the offerings of different lenders. Compare interest rates, fees, and loan terms, seeking the best possible option tailored to your unique needs. Your perseverance will be handsomely rewarded.

Apply for the New Loan: Once you’ve identified the ideal loan, it’s time to make your move. Complete the application process and provide the necessary documentation, such as proof of income or credit history. Present a strong case that showcases your financial readiness.

Close the New Loan: Hooray! Your loan application has been approved. The final step involves closing the loan, which entails signing a new loan agreement and covering any associated fees or closing costs. Embrace this milestone and look forward to a brighter financial future.

Understanding Potential Risks: A Prudent Approach

While refinancing can be a transformative step toward financial well-being, it’s essential to acknowledge and mitigate potential risks. Here are the factors to consider:

Mindful of Fees and Closing Costs: Refinancing may come with its fair share of fees and closing costs. Be diligent in evaluating these expenses, as they can accumulate. However, remember that the long-term benefits often outweigh the initial investment.

Balancing Act of Repayment Periods: Extending the repayment period when refinancing may provide temporary relief in monthly payments. However, be aware that you may end up paying more in interest over the life of the loan. Find the right balance that aligns with your financial goals.

Beware of Prepayment Penalties: Some loans carry prepayment penalties, which require a fee if you pay off the loan ahead of schedule. Before diving into refinancing, carefully review your current loan agreement to avoid any unwelcome surprises down the road.

The Credit Score Impact: Applying for a new loan can impact your credit score, particularly if you simultaneously apply for multiple loans. Understand the potential effects on your credit standing before proceeding with a new loan application.

In conclusion, refinancing holds immense potential for borrowers seeking to optimize their financial situation. However, it’s crucial to approach this endeavor armed with knowledge. By evaluating your current loan, diligently researching rates, and remaining cognizant of potential risks, you’ll be equipped to make an informed decision about whether refinancing is the right move for you. Empower yourself with the tools and understanding to pave the way for a brighter financial future.

The post Unlocking Financial Freedom: The Art of Refinancing first appeared on Mortgage Brokers Brisbane Gold Coast.

Sticking with the same loan longer than three years can cost borrowers thousands, with competition to win business resulting in new customers paying lower rates than existing ones.

This so-called loyalty tax has become such a hot topic, the Australian Competition and Consumer Commission has recommended mortgage holders review their options regularly and consider switching to secure better terms. Now is a great time to follow that advice and get in touch.

Rush to reset

Homeowner refinancing has hit an all-time record in the past six months, and it’s easy to see why, with interest rates at long-term lows. But it’s not just fixed rates borrowers should have their eye on. Homeowners with variable rates need to check they aren’t unwittingly paying a loyalty tax too.

Reserve Bank figures show owner-occupiers who took out new variable loans in October 2021 paid, on average, 2.63 per cent interest, while those with existing variable loans paid rates around 0.37 per cent higher rates at 3 per cent.¹ On a loan around $350,000, that’s potentially adding an extra $1,295 in interest each year.

As a customer there’s few things more galling than finding out someone who came to the party late has been given a bigger slice of cake than you. That’s why the most empowering thing you can do is to simply shop around, which is what I can do for you.

Annual review

Being financially savvy is about developing good habits, and one of the best for homeowners is to book an annual appointment to review your home loan arrangements.

The start of a new year is the perfect time to dive in. People usually have a little more headspace before the year really ramps up and finding savings can be a great cure for that summer spending hangover.

Speak to me to check how current variable rates compare, or perhaps it’s a good time to consider locking in a deal. Fixed rates have increased recently and speculation is mounting about a possible official interest rate rise in late 2022 or early in 2023.

More than interest only

Of course, refinancing isn’t always about interest rates alone, although they are a big part of the equation. It may be about building more flexibility into your loan with offset and redraw facilities, the ability to make additional repayments, or unlock equity for a renovation, a major purchase or holiday.

Some borrowers may even want to consider options such as splitting a home loan between both fixed and variable options.

It’s all about what your goals and priorities are right now, and we all know that can change unexpectedly year on year.

Broker insight

The home loan market has never been more competitive and we’re adding more lenders to our panel each year, with more loan products and features. It can be daunting, but it’s also where I can offer you an advantage in guiding you through what’s out there to meet your needs.

I can also help calculate how any potential savings stack up in the short and long term against any search and switch costs. It’s important to stay on top of rates and offerings in a fast-moving market. So, get in touch to arrange a quick check-up for your home loan.

¹ Lenders’ Interest Rates, Reserve Bank of Australia (published monthly online: rba.gov.au/statistics/interest-rates/#lenders-rates-table)

Add it up

In December 2020, the Australian Competition and Consumer Commission released the final report of its Home Loan Price Inquiry, concluding people with older home loans were potentially paying thousands more in interest than new customers. And it’s not just about falling interest rates. Newer customers are often able to secure variable loans at lower rates than existing customers because of competition to secure business, the report found.

And the older the loan, the worse the disparity. In September 2020 (when the report was compiled), owner-occupiers signing new variable-rate loans were paying an average interest rate of 2.62 per cent, meanwhile:

• Owner-occupiers with 3-5 year-old variable rate loans paid an average rate of 3.20 per cent.
• Owner-occupiers with variable loans 5-10 years old were paying 3.33 per cent.
• Owner-occupiers with a variable loan greater than 10 years old were on 3.66 per cent.

On an average loan balance of $350,000, those with older loans could save up to $3,640 a year in interest payments by switching. (See table below).

Little wonder one of the major recommendations of the inquiry was for lenders to send annual prompts to customers with loans older than three years to encourage them to review and consider refinancing. While lenders, perhaps understandably, haven’t run with the advice to encourage their clients to switch or push for a lower rate, I’m happy to help you regularly compare your deal to the current market.

Source: ACCC Final Report: Home Loan Price Inquiry, December 2020

Source: Home loan price inquiry – final report, The Australian Competition and Consumer Commission, 5 December 2020. (accc.gov.au/publications/home-loan-price-inquiry-final-report)

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Getting the itch to fix? Choosing the right time to lock in an interest rate can be tricky.

In the past year interest rates on fixed-rate loans have plummeted to all-time lows, prompting many borrowers to ask whether it’s time to lock in a rate.

If you’re thinking about it, you’re not alone. The number of homeowners opting for a fixed rate loan jumped sharply in March last year and remained high as rates continued to fall. According to the Australian Bureau of Statistics’ Lending Indicators data, the proportion of new home finance in fixed loans has jumped from around 14 per cent pre-COVID to just under 40 per cent. There are a few things to consider before you look at fixing.

First, how do interest rates compare on fixed and variable mortgages?

Across the past few months, fixed rate mortgages are tracking lower than standard variable mortgages, in some cases by quite a significant amount.

Do you expect interest rates to go up or down?

The major advantage in fixing is to avoid, or at least postpone, an expected rate hike. At the same time, no one wants to fix, then watch rates fall further.

Under normal conditions, when fixed rates are lower than variable rates it indicates the market expects further cuts. But with the RBA cash rate at 0.1 per cent, further cuts are highly unlikely. So, what gives?

Why are fixed rates so low?

The key phrase above is “under normal conditions”. Remember those?

When the pandemic hit last year, the Reserve Bank deployed billions to support the Australian economy through lockdowns and job losses. One of these measures was the Term Funding Facility. Set up in March 2020, the TFF is supplying money to banks on cheap three-year terms to support lending. It’s a great deal for lenders. They borrow from the RBA (at 0.25 or 0.1 per cent), then pass it on at a low rate to consumers, which is one reason fixed rates are so low. The TTF winds up at the end of June.

What can impact interest rates?

RBA cash rate: Reserve Bank Governor Philip Lowe has said the bank doesn’t expect to lift rates before 2024. It believes the Australian economy can’t sustain a rise until sluggish wage growth hits 3 per cent a year, which the RBA believes requires unemployment to drop to 4 per cent, and that is unlikely before 2024.

Bond markets: Bank interest rates do not mirror the RBA’s official cash rate. While the RBA may keep rates on hold until 2024, banks raise capital in bond markets and if the cost of money there rises, mortgage rates are likely to lift independent of the RBA rate. Rising bond yields signal inflation and possible interest rate rises. Yields spiked in February, but the RBA began aggressively buying bonds to hold them down. Commentators say money markets are pricing in a cash rate rise before 2024 and some lenders have recently lifted their four-year fixed rates.

It’s not just about interest

Interest rates are a major factor in deciding whether to fix or float but there are other things to weigh up.

Pros

• Fixed rates are currently very competitive.
• If you’re on a tight budget, fixing gives you certainty about repayments for the length of your loan term.
• Lock in at the bottom of the cycle and save on rate hikes.

Cons

• If you sell during a fixed term, you may incur significant break fees for ending the contract early.
• You will also be hit with break fees if you want to access equity generated by rising house prices in your home by refinancing during the term.
• You may not be able to pay off your loan faster by depositing lump sums or increasing your repayments as suits.
• Many fixed-rate loans do not come with offset or redraw facilities.
• If rates climb significantly during the fixed term, it can be a budget shock when mortgages revert back to a standard variable rate.

Is there a third option?

There are strategies to hedge your bets. Some lenders offer split home loans. These are exactly what they sound like – borrowers divide their mortgage between fixed and variable rates in any ratio they like: 70:30, 50:50 or 60:40. This allows extra repayments on the variable portion without incurring fees, and if interest rates rise, repayments on the fixed portion stay the same. If you have an offset account however, you will need to ensure enough of the split is retained in the variable portion to maximise savings, as offsets are not always offered against fixed loans. Get in touch and we can look at whether splitting your loan may suit your individual circumstances.

Another tactic uncertain borrowers adopt is to fix for a short period – say one year – then reassess.

If you would like to run through your options and the current range of low-rate fixed mortgage products on the market, get in touch with me to make a time – I’m always here to help.

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