Several mortgage experts believe that the central bank’s record-low cash rate is a boon for many borrowers on fixed-rate contracts as this will allow them to refinance their home loans to a significantly lower interest rate.
However, does this financial strategy really revolve on interest rates? Is this the right moment to refinance your mortgage? Let’s delve a little deeper.
Are mortgage rates expected to rise in 2021?
Last November, the Reserve Bank of Australia (RBA) made further adjustments to the cash rate. It will now be 0.1%. The central bank said that the rate would not change for three years.
Potential home buyers and mortgage holders feel more secure. Experts in property say that a rate drop will lead to increased housing affordability. This is especially true when banks or other lenders pass the lower rates on to their customers.
Refinancing is an option for borrowers who have fixed-term mortgages, but it depends on their current contracts.
Is this a good time to refinance?
Because each mortgage holder’s financial situation is different, refinancing may not be the best move for everyone. To determine if refinancing is the right option for you, you should evaluate your financial situation as well as your current contract.
These are just some examples of where refinancing is a good idea.
1. While you may be able to get lower rates than the current rate, they are not as competitive.
Because interest rates have dropped, the deal that you received when your mortgage contract was signed may no longer be as attractive. If your contract is ending, refinancing may not be possible. Break fees will be charged to you if the loan’s term is nearing its end. These fees can be so high that refinancing is not possible.
2. Your property’s value has increased, and you want to access your equity.
Equity can grow in value over time. If you need funding for a huge personal spending such as a child’s education, new car, family vacation, home renovation, or investment property, you can tap into your equity via cash-out refinancing. You can use this method to finance your expenses at a lower rate than personal loans. However, you still need to stay within your lender’s loan-to-value (LVR) threshold.
3. Your financial and personal situations have improved.
People with poor credit ratings are often forced to accept a higher interest rate to be eligible for a loan. Some borrowers can improve their credit score and rebuild their credit history. A low-interest mortgage may be available that you can then refinance.
4. Consolidate your credit card debts.
Refinancing can be a great way for you to manage your financial debts. If you have enough equity, consolidating all your debt can be done in one payment. This strategy can reduce your interest rates and simplify your finances.
What are the best ways you can get lower refinance rate
To find the best interest rates available, it takes time and research. It is a great place for starting your research, since it provides a range of financial comparison sites that provide up-to-date information about the different rates and loans that banks offer.
To get lower interest rates from these lenders, you can do practical things that are simple and easy. Here are some examples.
1. You can improve your credit rating.
Your credit score is a measure of how well you manage your finances and how easy it will be to pay your monthly repayments. A higher score means you have a better chance of getting a deal.
2. You should verify your credit file to ensure its accuracy and completeness.
You should have any errors in credit reports corrected by your agency. An error in your credit report could affect how lenders see you.
3. Reduce your debt.
Lenders also consider your debt to income ratio (DTI). This is used to assess your ability to make monthly payments. DTI is your monthly debt payment’s share of your gross income. You will get a lower refinance rate if your DTI ratio is lower.
4. Do not apply for more than one credit card.
Excessive credit card use can negatively affect your credit score. Lenders may view this as a sign you are in financial trouble. Limit the credit card balances to what your budget can handle. It’s also a smart idea to lower the limit on your existing credit cards.
5. Avoid cash-out refinancing whenever possible
You can access the equity you have in your property by cash-out refi. It raises your LVR, which in turn pushes up interest rates.
6. Lock in your refinance rates
Locking in the refinance rates is the best way to go. This will protect you from the rate changing before closing your home loan. You can also allow your rate to float. This is only if your interest rate drops before closing your loan. You could end up paying more if the interest rate drops before you close your loan.
Which lenders offer the best refinancing rates?
Different lenders offer different rates, so it is a good idea do your own research. Then, you can compare interest rates and loan terms to find the best one for your financial situation.
According to some mortgage experts, lenders will not offer the best rates to homeowners who have sufficient equity in their home. You should review your loan terms every few decades to ensure you get the best rate.
You can compare home loans from some of the country’s top lenders by visiting this page.