If you’re thinking about refinancing your home loan, it’s essential to act sooner rather than later, especially with the current trend of rising interest rates. If you have never refinanced before or can’t recall when you last did, chances are you are paying a higher interest rate than necessary.
The reason for this is that banks often reserve their lowest interest rates for new customers in an effort to attract them, while existing customers pay a “loyalty tax.” According to a recent analysis by RateCity, loyal customers could end up paying an additional $5,101 in interest over the next three years alone, based on a $500,000 loan taken out with Commonwealth Bank in 2019. The extra cost goes up to $7,652 for a $750,000 loan and $10,202 for a $1 million loan.
Refinancing now is particularly crucial because as interest rates go up, so does the hurdle you need to clear for home loan serviceability, which is the ability to make your home loan repayments at an interest rate that’s at least 3% above the offered rate. The four big banks in Australia are anticipating an increase in the Reserve Bank of Australia’s official cash rate, which means that the sooner you refinance, the lower the hurdle you’ll need to jump to ensure you’re not stuck with your current rate and lender.
To explore your refinancing options, you can get in touch with a professional who can guide you through the process. If you don’t want to switch lenders, you can always ask your current lender to review your rate and let them know you’re willing to refinance if they don’t offer a better rate. Remember, loyalty should work both ways.
It’s important to note that this information is general and informative, and not intended to be financial advice. Before making any decisions, it’s essential to consider your personal circumstances and seek professional advice.
