3 Ways You Know It's Time To Refinance

Interest rates are up but it’s very possible you can give yourself multiple rate cuts… immediately.

Here is your handy checklist for how you know it’s – high? – time to move mortgages.

Tick box 1: You are paying over the odds

A happy by-product of the pandemic has been a mortgage price war that has seen some far more competitive home loan interest rates.

But I stress, only some interest rates.

The thing is that there remain eye-wateringly expensive loan products out there, that even reward your loyalty by lifting the interest rate level.

In fact, there are now almost 300 basis points between the best-value home loans in the market and the most costly.

And chances are you are paying over-the-odds if you’ve had your mortgage for as few as three years.

There is another fairly sure indication you’re getting fleeced too: your loan repayments eat up more than one-third of your household’s gross income.

You are most at risk from future interest rate rises if you are one of the many Aussies who have borrowed six or more times your income, and/or as much as 90 percent, to secure your property purchase.

But enough of that negativity. I almost guarantee there are far cheaper products out there – that can deliver you an overnight repayment reprieve….

Tick box 2: You are coming off a fixed rate

There was another important knock-on effect from the crisis in health, to our wealth: Fixed mortgage rates moved far below variable rates, as official interest rates plummeted around the world.

That caused a stampede of mortgage holders to fix. And those who didn’t fix for long, will shortly see a big jump in repayments.

You see, the more sinister strategy behind that ‘price cutting’ was to get you into a product that is actually uncompetitive and expensive over the longer term.

Indeed, a loan that offers a cheap fix will very rarely offer a decent variable rate.

So – sometime soon – many families face sudden repayment pain. (Fixes are today way more expensive too.)

But again, let’s get positive…

Tick box 3: You have built 20 percent equity

The third relevant consequence of the Covid-craziness is house prices. If you are lucky enough to have already stepped onto the property ladder, it’s been more like an elevator upwards!

That means that even if you did borrow, say, 90 percent of the purchase price, you may own a far bigger chunk of what your house is worth today.

Which brings me to the beautiful ‘bottom line’: With 20 percent equity or more, you can now access the best, cheapest home loans in the country.

Do you tick all three refinancing boxes?

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me and an independent money educator across Australia’s newspapers and websites, and radio and television programs.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the policy or views of Unloan. The article is provided for general information and have been prepared and provided without considering any person’s financial situation, needs or objectives. You should consider their appropriateness to your own situation before making any decisions.

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