The Reserve Bank has just raised interest rates for the third consecutive month. That makes it a good time to explore your refinance options. You should always explore refinancing options whenever market conditions or your individual circumstances change.
Why are interest rates rising?
The main reason why interest rates are rising is that the Reserve Bank wants to get Australia’s inflation rate under control. Australia’s current inflation rate of 5.1% is the highest it’s been since 2007/2008 (the height of the global financial crisis). The Reserve Bank hopes that higher interest rates will reduce demand in the economy. This in turn will put downward pressure on prices to ease the cost of living.
Unfortunately, if you have a large mortgage, you’ll feel the effects of that increased interest rates solution with higher monthly repayments. If your bank has passed on all three Reserve Bank interest rate increases in full over the past three months and you have an average-sized mortgage of $500,000, your monthly repayments will have increased by more than $300.
The further bad news is that many analysts are tipping further interest rate rises before the end of the year.
Is now a good time to refinance?
That depends on both your current and expected future situation. It can be a good time to refinance if:
- you can get a lower interest rate. Even a slightly lower interest rate can make a big difference to your repayments if you have a large mortgage.
- you’re struggling to make your higher repayments. You may be able to refinance your loan over a longer term to make your repayments more affordable.
- you want to lock in a fixed rate now that you know you will be able to afford in the future. This can help to protect you against higher variable interest rate rises.
- the overall benefits of refinancing outweigh the cost.
Why are fixed rates higher than variable rates at the moment?
This reflects the fact that lenders expect interest rates to rise further.
Taking out a higher fixed rate now can give you the peace of mind to know that you won’t have to worry about interest rate rises for the duration of your fixed term.
On the flip side, if you take out a higher fixed rate now and variable interest rates don’t rise by as much as the fixed rate you lock in, you will be paying more.
Unfortunately, no one can predict with certainty what interest rates will do.
You can use your refinance savings calculator to get an idea of the savings you might be able to make.
What is a comparison rate?
This rate reflects both the interest rate and the cost of any other loan fees charged by the lender. Always use the comparison rate to compare the total cost of different loans before you make a decision.
How we can help
If you’re thinking about refinancing your residential home or investment property loan in Newcastle, Maitland or Lake Macquarie, talk to us. Our licensed and experienced brokers at Wisebuy Investment Group can let you know about your options.
We work with more than 60 lenders in the Australian market, and we can help you with your refinance application. Importantly, we work for property buyers, not lenders.
Contact us today for an obligation-free chat to find out more. We’d be happy to answer any questions you have.