With more than a third of our home loans written on fixed terms, many of us face the prospect of a significant change when these arrangements expire.
Industry researcher CoreLogic says the so-called “refinancing cliff” is about to start to bite in Australia.
With loan rates currently standing at between 5% to 6.5%, this refinancing cliff is going to hit many families hard, especially if they’ve enjoyed fixed rates that went as low as 1.95%.
For many owners and those preparing to either buy or sell property, the direction of home loans is a critical factor.
Shop around
Borrowers are already in the market, trying to find the best deal before their fixed-term mortgage expires. Others are talking to their lender about restructuring their loans or finding the best available arrangement.
Lender strategy
Mortgage providers are thinking through this challenge. They’ll be identifying their best customers and those carrying the most risk. If you believe you will face fiscal challenges in the coming months, we recommend talking directly to your lender or broker.
Equity position
The equity you have in your home (the amount of your mortgage you’ve paid off) will be a significant factor when lenders consider a re-financing request or new applications from those seeking to move from their current lender. They will use a calculation called Loan-to-Value Ratio (LVR).
Loyalty challenge
Banks see customer loyalty as a major challenge in the current environment. This should make the mortgage market more competitive, offering attractive deals. However, it’s unlikely you’ll find any as low as your fixed-rate loan.
Favourite customers
Lenders will be analysing their most secure clients: those least at risk of defaulting. If you are in a sound position currently, you may be able to secure a better deal by approaching your bank and asking what they’ll do to keep your business.
Location risk
Lenders will also analyse the market to identify areas most likely to face value challenges. So-called “Location Risk” reports can be modelled to identify price trends in your neighbourhood over the next 18 months to two years.