Over the last couple of years the landscape of rates and lending have changed in unprecedented ways. We’ve seemingly entered a moment of stability with rates remaining unchanged for a couple months. Everyone is wondering, what is next?
With so many people coming off those 2.something% fixed rates from a few years back, is now a good time to refix? Should you be sticking with your current lender or shopping yourself around? How easy is it to take advantage of the best offers on the market?
Once upon a time, Australians could apply for loans with an interest rate of 2% and fix this in for 2-5 years. It was a dreamy time until the RBA gave Snow White a kiss and suddenly everyone is waking up to 6% whilst fighting rampant inflation. Many consumers’ fixed rates have now expired and this trend looks to be continuing for the next 6-12 months.
So, what should you do?
Firstly, the bank isn’t going to be your charity when this happens. One thing that occurs, is your interest rate will revert to an exorbitant rate without you realising. We have seen customers being offered ~7.5% with minimal notification. The easiest form of action is to make sure you (or your broker) contact your bank and ask for a rate review/discount a few weeks before your fixed rate expires. You need to confirm the best offer they’re willing to give you. You can then compare this to your suite of options.
Whether you’ve recently come off your fixed rate, or have whiplash from the extraordinary changes to the rates in recent year and are looking for greater certainty. Fixed rates have seemingly come over the hill from their peak. Lenders are dangling a small carrot at the moment for fixed rates at just under 6 per cent offering 5.99% for 3 years. I can bet my bottom dollar they are not offering this to clients out of generosity. It is prudent to remember it is far easier to request a bank fix your loan in if it is currently variable, than going the other way. In some cases (and more likely in an environment of falling rates) you may be charged an additional break fee to move from fixed back to variable. So be careful not to fix too early when it starts to look attractive.
If you’ve found yourself unhappy with your current lender, and aren’t able to push them to meet your requests for lower rates than match market levels -Now is a good time to look at refinancing to one who will be better suited to your needs, and place you in a better position.
Lenders have begun to bring back the crowd-favourite cashback offers (most are $2,000) to cover the refinance costs, and leave you with some extra cash in your pocket. The last 12 months of rate increases does however mean it is more difficult now to service a loan than ever before. Just because you can afford it in reality, you need to remember that the bank includes buffers in all their calculations (e.g. 3% on top of the rate they’re offering on the chance rates jump up again).
With the increases to rates seemingly behind us, it doesn’t mean it's time to forget about your home loan. Just because the RBA hasn’t made a major move in a while, your existing bank is still not looking to give you the best rate of offer if they can help it. Your broker is supposed to do the work and research behind the scenes to make sure you’re being put in the best possible situation.
If you haven’t reviewed your home loan in the past 6 months, it is important to get in touch and have a quick call to confirm the health of your home loan.