Why you might want to refinance sooner rather than later

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Thinking about refinancing? As interest rates rise, so do the hurdles you need to clear. Here’s why you might want to look at refinancing soon to avoid potentially missing out.

When was the last time you refinanced?

If the answer is “never”, or you can’t actually remember, there’s a good chance you’re paying a higher interest rate than you could be due to the “loyalty tax”.

You see, the banks don’t think you’re paying attention, and as such, they only offer their lowest rates to new customers in a bid to win them over – as proven by the RBA.

In fact, a recent RateCity analysis found that customers who stay loyal to their bank could be hit with an extra $5,101 in interest over the next three years alone (based on a $500,000 loan taken out with CBA in 2019).

For a $750,000 loan that would be an extra $7,652 in interest, and for a $1 million loan it’s $10,202 extra.

This is a big reason why owner-occupier refinancing across the country rose 9.7% in June to a new record high of $12.7 billion, according to the Australian Bureau of Statistics.

Great. But why is refinancing now so important?

Ok, so when you refinance, your new lender must assess something called your “home loan serviceability”.

Basically, that’s your ability to meet your home loan repayments at an interest rate that’s at least 3% above the rate you’re being offered.

And as you might have seen on the news, the big four banks are tipping the RBA’s official cash rate to increase from 1.85% in August to anywhere between 2.60% (Commbank forecast) and 3.35% (ANZ forecast) by November.

That means as interest rates go up, so too will the hurdle you’ll need to clear for home loan serviceability when refinancing.

All in all, that means the sooner you refinance, the lower the hurdle you’ll need to clear to ensure you’re not stuck with your current rate and lender.

How to explore your refinancing options

This is the easy bit! Simply get in touch today and we’ll help you get the ball rolling.

And even if you don’t want to refinance with another lender, there’s always the option of asking your current lender to review your rate, indicating that you’re prepared to refinance if they don’t come to the table.

After all, loyalty should be a two-way street!

So if you’d like to find out more about what options are available to you, give us a call or flick us an email today – we want to help you through the period ahead as much as we possibly can!

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Refinancing numbers are surging across the country, here’s why

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Rising interest rates got you feeling a little vulnerable? It might be time to take some control back by refinancing or asking for a rate review. Here’s why we’re seeing refinancing numbers surge across the country.

In just two months we’ve seen the Reserve Bank of Australia (RBA) increase the cash rate from a record-low 0.10% to 0.85%, and it hasn’t taken long for most lenders to pass those rate increases on to customers.

Unfortunately, the RBA has warned that more rate hikes are on the way, which might have left you feeling at your lender’s mercy.

But there are ways you can make yourself feel more in control, including by doing what tens of thousands of mortgage holders around the country did in May: refinancing or asking their current lender for a better rate.

Homeowners are refinancing in droves

According to PEXA’s latest refinancing insights, refinancing increased by more than 20% in May (from April) across each of Australia’s four most populous states.

Here’s a quick breakdown:

NSW: 10,838 refinances. That’s up 20.8% on April, and up 15.6% year on year.

VIC: 11,500 refinances. May up 26.7% on April, and up 23.3% year on year.

QLD: 6,699 refinances. May up 21.8% on April, and up 49.6% year on year

WA: 3,244 refinances. May up 25% on April, and up 46.1% year on year

So why the big increase in refinancing?

Lenders now, more than ever, need to attract and retain borrowers.

So just because rates are going up, doesn’t mean you can’t scope out a better deal – especially if you have a decent amount of equity and a strong track record of meeting your mortgage repayments.

If that sounds like you: you’re a good customer. And lenders want good customers.

The other big reason for the recent surge in refinancing is that smaller lenders are stealing more and more borrowers away from the major banks with super-competitive rates.

In fact, in NSW, Victoria, Queensland and Western Australia combined, the major banks and their subsidiaries had a net loss of more than 5,000 borrowers to non-major lenders in May, according to PEXA.

Competition is fierce!

Why work with a broker now?

The amount of loans being written by brokers continues to grow.

In fact, brokers are currently writing 70% of all new home loans in the country – the biggest market share ever.

And as you know, brokers are loyal to you, not to any particular lender.

That means that if we think you can get a better deal elsewhere, we’ll encourage and help you to do so – not hope that you’ll stay put on your current rate.

And even if you don’t want to refinance with another lender, there’s always the option of asking your current bank to review your rate (and indicating that you’re prepared to refinance if they don’t come to the table).

So if you’d like to find out more about what options are available to you, get in touch with us today – we’d love to help you feel like you have some agency in the period ahead.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Brace yourselves: a May rate hike might be coming next week

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The chances of the Reserve Bank of Australia (RBA) lifting the official cash rate on Tuesday just increased dramatically after figures showed the cost of living jumped 5.1% over the past year – the highest annual increase in more than 20 years.

Economists around the country say the unexpectedly high jump in inflation means a May rate hike is now on the cards when the RBA board meets on Tuesday.

“Expect the RBA to start hiking next week. First hike should be +0.4%,” said AMP chief economist Dr Shane Oliver.

ANZ Bank meanwhile immediately called for the Reserve Bank to raise the cash rate to 0.25%.

“A cash rate target of 0.1% is inappropriate against this backdrop,” said ANZ head of Australian economics David Plank.

So what’s going on?

Cost of living – aka the Consumer Price Index (CPI) – rose 2.1% in the March 2022 quarter and 5.1% annually, according to Australian Bureau of Statistics (ABS) data released on Wednesday.

According to the AFR, market economists were tipping headline inflation to jump to 4.6% year-on-year, so this has smashed those expectations.

ABS Head of Prices Statistics Michelle Marquardt said a combination of soaring petrol prices, strong demand for home building, and the rise in tertiary education costs were the primary factors driving up inflation.

It’s also worth noting that the RBA’s preferred measure of inflation – underlying inflation – which strips out the most extreme price moves, came in at 3.7%.

That’s now well above the 2-3% target range the RBA has previously stated was a key measure for triggering a cash rate hike.

If cost of living is up, why would the RBA increase rates next month?

High inflation is bad because it means the real value of your money has dropped and you can buy less goods and services than you could previously.

High inflation also has a habit of getting out of control, because one of the drivers of inflation is people expecting inflation.

Economists would argue that raising interest rates now is a hit we have to take to ensure we don’t end up with runaway inflation (short term pain trumps long term disaster).

Higher interest rates cool inflation in a number of ways, but one of the main ways they can actually save you money right now is via the exchange rate.

If the RBA doesn’t raise rates, investors will likely decide they can get better returns elsewhere around the globe, thereby lowering demand for our currency.

And if Australia’s exchange rate falls, the cost of imported goods, including the oil you fuel your car with, would go up even higher.

So it’s a tough pill to swallow for mortgage holders, but inflation can get out of hand if left unchecked. Prime examples include high inflation in Australia in the 1980s, and more recently Zimbabwe.

What does this mean for your mortgage repayments?

Well, if the RBA increases the official cash rate on Tuesday, as many economists are now predicting, unless you’re on a fixed rate mortgage, it’s likely the banks will follow suit and increase the interest rate on your home loan.

How much your repayments will go up each month will depend on a number of factors, including if the RBA increases the cash rate to 0.25% or 0.5%, how your bank responds, and the size of your mortgage.

If you’re worried about what interest rate rises might mean for your monthly budget, feel free to get in touch with us today to explore some options, which could include refinancing or locking in a fixed rate ahead of any other future RBA cash rate hikes.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

What’s your debt-to-income ratio? And why do lenders care about it?

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New data from the lending watchdog reveals almost one in four new mortgages are risky. How are they deemed risky? Well, it’s got something to do with your debt-to-income ratio, which we’ll explain in this week’s article.

Your debt-to-income (DTI) ratio might sound complicated, but it’s really very simple to work out.

Basically, your DTI is a measurement used by lenders that compares your total debt to your gross household income.

The formula is: total debt / gross income = debt-to-income ratio.

So if you’re seeking a $700,000 home loan (and have no other debt), and you have $160,000 in gross household income, your DTI is 4.375 – a ratio most lenders would be very comfortable with.

So why do lenders care about your DTI?

Well, December quarter data just released by the Australian Prudential Regulation Authority (APRA) shows 24.4% of new mortgages have a DTI ratio of 6 or higher.

At the 6+ ratio, APRA (aka the banking watchdog) deems these loans as risky.

And they’re keen to see the percentage of these loans that lenders approve start to come down.

That’s because they’ve been steadily on the rise for a while now.

In the September 2021 quarter, for example, new mortgages with a DTI of 6 or higher were at 23.8%, while in the December 2020 quarter it was at just 17.3%.

“However, the rate of growth in the [most recent] quarter slowed,” APRA points out (probably with a sigh of relief) in their latest release.

So why has the percentage of risky loans recently risen?

The recent rise in high DTIs has most likely got a lot to do with the phenomenal price growth (and resulting FOMO!) we’ve seen across the country over the past 12-18 months.

In fact, new data released by the Australian Bureau of Statistics shows that in the 12 months to December 2021, residential property prices rose 23.7% – the strongest annual growth ever recorded.

The mean price of residential dwellings in Australia now stands at $920,100.

That’s a jump of $44,000 from the September quarter ($876,100), and a jump of $176,000 in 12 months from the December 2020 quarter ($744,000).

So with property prices increasing at such a sharp rate, and people stretching themselves to their limits to buy into the market, it has resulted in upwards pressure on high DTI percentages.

The good news is that as the property market starts to cool, so too should the growth rate of risky DTIs, which is what APRA alluded to above.

So how much can you safely afford to borrow?

There’s a fine line between maximising your investment opportunities and stretching yourself beyond your limits.

Especially so as RBA Governor Dr Philip Lowe this week warned Australians to start preparing for higher interest rates.

And that’s where we come in.

It’s not only important to stress-test what you can borrow in the current financial landscape, but also against any upcoming headwinds that are tipped to hit borrowers – such as interest rate rises and possible tightening lending standards.

But hey! Everyone’s financial situation is different. Some lenders will take into account your particular circumstances and accept a loan application where a DTI is higher than 6.

So if you’d like to find out your borrowing capacity and options, get in touch today. We’d love to sit down with you and help you map out a plan.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Fixed rates on the rise, as CommBank tips a June cash rate hike

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Hold onto your hats, things are about to get a little bumpy. Economists from Australia’s biggest bank are predicting the Reserve Bank will raise the official cash rate as early as June – and we’re already seeing fixed interest rates increase significantly.

Commonwealth Bank (CBA) economists have brought forward their forecasted Reserve Bank of Australia (RBA) cash rate hike from August to June, making it the earliest prediction amongst the big four banks.

We’ll go into more detail on why CBA has brought forward their prediction below, but first something a little more concrete: we’ve definitely noticed fixed rates trending up in recent months.

Fixed rate hikes

For example, back in November, for a $700,000 loan at 80% loan-to-value ratio, a two-year fixed rate with one particular lender was 1.84%.

That rate has since gone up to 3.04% – a staggering increase.

While not every lender has increased fixed rates so significantly, we are seeing them go up across the board.

So if you have been umming and ahhing about fixing your rate lately, you’ll want to get in touch with us sooner rather than later.

Because while most lenders have recently reduced their variable rates to compensate a little, with news now that the cash rate is being tipped to increase mid-year, you can expect variable rates to increase with the cash rate.

So why has CBA brought forward their forecast to June?

Ok, so back to CBA’s June cash-rate hike prediction and why they’ve brought it forward from August.

In a nutshell, CBA senior economist Gareth Aird is anticipating inflation to be a lot stronger than the RBA is forecasting.

As a result, Mr Aird believes this will lead to a rise in the cash rate to 0.25% at the June board meeting (currently it’s at a record-low 0.1%).

“We are very comfortable with our expectation that the quarter-one 2022 underlying inflation data will be a lot stronger than the RBA’s forecast,” explains Mr Aird.

And here’s the thing: it’s not the only cash rate hike CBA is predicting the RBA will make over the next 12 months.

Mr Aird is expecting a further three rate increases over 2022 to take the cash rate to 1%, with another move to 1.25% in early 2023.

That’s five cash rate hikes over 12 months!

Get in touch today to explore your options

Believe it or not, there are more than 1 million mortgage holders out there who have never experienced a rate rise (the last RBA cash rate hike was in November 2010).

And if the CBA’s prediction of five rate hikes over the next 12 months proves right, then some households will be in for a bumpy ride as they face hundreds of dollars in extra mortgage repayments each month.

So if you’re keen to act before the RBA increases the official cash rate, get in touch with us today. We’d love to sit down with you and help you work through your options in advance.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.