Homeowners are refinancing in their droves, taking advantage of record-low interest rates to climb the property ladder, maximise the value of their existing property or hunker down for a rate rise.
New figures show 363,978 properties were refinanced last year, an increase of 27.9% on 2022.
One driver for this activity has been speculation about the future of interest rates, with many owners deciding it’s time to lock-in a deal before the Reserve Bank of Australia (RBA) increases rates to dampen inflation.
That’s according to Mike Gill, who heads research for the property settlement specialist Pexa, which has published the latest data and has identified that the current volume of refinancing deals is well above historic levels.
Even for January, Pexa’s index for refinancing was 50 per cent higher than the corresponding month last year. Interestingly, the activity is consistent across every state and led by those living in the outer suburbs of our capital cities.
The Big Four banks have predicted a June decision on interest rates. It’s expected the cash rate will move from 0.1% to 0.25%. The RBA, however, has not specified its timing.
As an experienced agency in your area, we’re always concerned about the affordability of homes and the ability of owners to upgrade or downsize in line with their property and wealth ambitions.
Anecdotally, we’re hearing many owners are investigating the prospect of locking in their interest rates. Lenders are currently offering a variety of arrangements that would allow owners to fix their rate for between one to five years.
Below, we’ve listed a few hints and tips that you might be tempted to explore. Of course, we recommend consulting your lender or broker.
Lenders are not waiting
Lenders are not hanging around for the Reserve Bank. They’ve been edging up the cost of one-year fixed-rate mortgages for months. Right now, one-year rates vary from 1.99% to close to 5%.
Discuss the small print
It’s always a good idea to see the best rates on offer. However, there’s more to a mortgage than a rate. Fixed rate loans tend to lock you in for a set period and come with strict conditions that can only be broken by paying a penalty. A variable rate gives you more flexibility. Discuss the small print with your lender or broker.
Longer deals can be more expensive
Make sure you’re diligent with your research and questions. You can extend a fixed-term rate for up to five years, but the longer deals usually come with additional conditions and a higher rate than, say, a 12-month arrangement.
Be ready when the deal expires
Make sure you’ll be in a position to handle higher mortgage payments at the end of your fixed rate period. If you find a sweet deal, the unfortunate reality is that it doesn’t last forever.