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Mortgage refinances surge as interest rates rise

By ,| 5 min read

Interest rates are rising in Australia, and this trend doesn’t look like it’s slowing any time soon.

Many Aussies are rushing to refinance their home loan to try and keep their mortgage repayments down amid interest rate increases.

In this article, we’ll cover some of the reasons why you might want to consider refinancing with rates on the rise. Plus, we’ll explain what the future of interest rates looks like and how you can manage rising mortgage repayments.

What’s going on with interest rates?

As most homeowners will know, the Reserve Bank of Australia (RBA) raised the cash rate in May this year for the first time in nearly 12 years.

The RBA increased the cash rate to try and get inflation under control. The cash rate affects the interest rates lenders charge on products like home loans and car loans.

By increasing interest rates and making borrowing more expensive, the RBA aims to reduce consumer spending, which in turn will dampen demand and cool down inflation.

Since May, the cash rate has risen from 0.10% to 1.85%. This hike has seen interest rates on both fixed and variable rate home loans go up. However, anyone currently locked into a fixed rate term won’t feel the effects of rate hikes until their fixed period ends.

Because home loan repayments are increasing, borrowers have been trying to find ways to keep their repayments down. This is where refinancing comes in.

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Interest rates are rising: why should you refinance your home loan?

In May, refinanced loans reached a record $19 billion, according to data from the Australian Bureau of Statistics (ABS).

According to PEXA’s Refinance Index, the volume of refinanced loans rose in July across New South Wales, Queensland, Victoria and Western Australia.

Considering the refinancing activity over the last few months, Aussies aren’t hesitating to refinance their home loans.

Whether it’s to secure a lower interest rate or not, here are some reasons why you might want to refinance your mortgage:

1. Secure a more competitive interest rate

While interest rates are rising in Australia, there’s still a chance you might find a better interest rate with a different lender.

You might also want to ask your lender to match your rate with the lower rates they’re offering new customers, to avoid paying loyalty tax.

It’s worth doing some research to compare home loans and interest rates between lenders and see if you can secure a lower interest rate.

2. Add or remove home loan features

Maybe you’d like to add a redraw facility to your loan so you can make extra repayments with flexibility. Or, maybe you’d like to remove your offset account because you pay for it, but don’t use it.

Whatever your needs, refinancing to add or remove home loan features can help you save money on your mortgage.

3. Your personal or financial circumstances have changed

It’s common for circumstances to change in your life after first taking out a home loan, like your income going up or your other household expenses rising.

These changes might necessitate refinancing to ensure your home loan suits your situation.

4. Lock in a fixed interest rate

While fixed rates have been on the rise, you might still consider refinancing to a fixed rate home loan for some stability as interest rates continue to rise.

This will ensure your repayments remain consistent for a locked period of time, despite fluctuations to interest rates.

5. Consolidate debt

If you have multiple debts such as credit card debt, a car loan or a personal loan, you might consider refinancing your home loan to consolidate your debt.

Debt consolidation bundles all your debts into your home loan so you only have to make one monthly repayment.

Since home loan interest rates are typically lower than interest rates on other debts, you could also pay less in interest.

6. Access home equity

There are a few reasons you might want to make use of your equity, like undertaking renovations on your home or purchasing an investment property.

If you want to tap into your equity, you’ll need to obtain a home equity loan by refinancing.

7. Switch to a more satisfactory lender

You may want to refinance if you aren’t happy with your lender. Maybe their customer service isn’t up to scratch or their values don’t align with your own.

Whatever the issue, refinancing to a better lender that’s more suited to you could be the answer.

What will interest rates look like in the next 6 to 12 months?

It looks like interest rates will continue rising for at least the next 12 months.

The RBA forecasts that the cash rate will peak at around 2.5% as the central bank attempts to bring inflation back down to its 2% to 3% target.

Considering it’s predicted that inflation might reach 7% at the end of this year, we might not see this cash rate peak for a while yet.

In terms of actual interest rates, a cash rate peak of 2.5% could mean an average variable interest rate of 5.27% according to Canstar.

4 tips for managing rising home loan repayments

Since rising interest rates mean rising home loan repayments – at least for those with variable or split loans – you might want to consider how you’ll manage these repayments.

If you’ve done what you can to keep your repayments down, like switching to a lower rate, here are 4 tips for managing higher mortgage repayments.

1. Use your offset account

If you can, utilising your offset account could help you lower your mortgage repayments. The amount of money in your offset account offsets your home loan so you pay less in interest.

Even if you don’t have lots of extra cash to put in the account, getting your income paid into this account could still help you save, as interest is calculated daily.

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2. Review your loan regularly

Keeping on top of your loan can help you avoid paying more than you have to.

You might decide to review your loan regularly yourself or get the help of an expert like a Home Loan Specialist or a mortgage broker.

3. Examine your household budget

It can be tricky to trim down your household budget when the cost of living is high. But, sometimes cutting back even a little can go a long way, especially when your home loan repayments are rising too.

Going through your spending with a fine tooth comb can help you work out where you can save, so you can comfortably make your mortgage repayments.

4. Ask for help

Sometimes your home loan can simply become too hard to manage. If this happens to you, it’s best to get help as soon as possible.

Contacting your lender’s hardship team will mean your lender is aware of the situation and can start working with you towards a solution. They might temporarily pause your repayments, for example, to help you get on top of your mortgage.

It could also be worth getting in touch with a qualified financial adviser to get to the root cause of your financial issues.

Do you want expert help with your home loan? Lendi’s Home Loan Specialists are here to answer your questions. Book an appointment at a time that suits you.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: home loan, mortgage repayment, interest rate, refinance, debt consolidation, equity

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