With the cash rate last week falling to an historic low of 1.5 per cent, competition in the home loan market is once again heating up. The bottom end of the market is a cutthroat race to the bottom with variable rates as low as 3.35 per cent available to refinancers.
Even with the low rates on offer, Australians can be forgiven for hesitating before leaving their lender. Putting aside the hassle, there are a bunch of emotional reasons for sticking to what we know.
But punching a few figures into a mortgage calculator shows moving to a lower rate can equal significant savings in the longer run. Before you move though, here are three things to think about.
1. Switching costs
Even though refinancing can mean thousands of dollars in savings over time, there may be costs associated with switching loans that need to be considered. While exit fees have been banned since July 2011, any loans signed before this date can have attached fees associated with breaking the loan term. To determine if you will be eligible to pay fees for switching loans you should consult the product disclosure statement of your loan.
But it’s not just exit fees that need to be factored in. Establishment fees for new home loans can range from nothing to upwards of $500 so make sure you read the fine print before signing up. While this is a once off cost, that will more than likely be minimal compared to the amount you will save over the life of the loan, it still needs to be factored in to refinancing plans.
2. Access to the features you need
Refinancing to the lowest rate on the market may save on interest paid on your mortgage but is not necessarily the best option for all borrowers. For example, if you plan to take advantage of your loan’s redraw facility in the future, refinancing to a loan that doesn’t offer a redraw facility, just for a low rate, wouldn’t be the best move. Similarly, if you use your loan’s offset account or repayment holiday feature and then refinance to a loan offering the bare minimum you may be disappointed.
It is important to consider your needs and balance them out with a good rate so that you have a mortgage that saves you money in the long run and suits your lifestyle.
3. Future rate cut forecasts
For borrowers who want to play the long game, experts are forecasting another RBA rate cut for later in the year. NAB predicted two more rate cuts to come. This could potentially see rates drop even lower, although the likelihood of a full cut being passed on by most lenders is fairly slim.
What it does mean though is that the rate war is far from over and lenders will continue to jockey for the lowest rates to gain your business. Keeping an eye on the market is key for all borrowers who are keen to monitor their bank’s movements or get themselves a bargain elsewhere.
Patricia Babalis is a personal finance writer for RateCity.