Fixed-term rate home loans: to renew or refinance?

The Reserve Bank expects there are up to 800,000 fixed-term home loans nearing expiry in 2023. And if you find yourself in this situation, getting your ducks in a row by speaking to a professional finance broker before your fixed-rate home loan term ends, may help you save significant dollars in interest and fees over the life of your loan.

Over the past 30 years, we have never seen 10 consecutive rate rises – taking the cash rate from 0.1% to 3.60%. Volatile rate hikes such as this, have a severe impact on the hip pocket of all homeowners with a mortgage.

Don’t accept the first offer from your bank.

Banks and non-bank lenders will typically send letters out to their customers about 2-3 months before the expiry of their fixed rate terms, offering “special” discounted rates as a reward for their ongoing loyalty.

On the surface, it may appear as though you’re receiving an offer that is too good to refuse from your bank. And whilst it might be convenient to simply renew your loan at your existing lender’s discounted rate, you may not necessarily be receiving the best interest rate available in the market.

Speaking to a professional finance broker 2-3 months before your fixed-term loan ends can put you in a favourable position to gain significant savings. Perks Finance has access to over 30 different lenders with owner-occupied home loan rates currently from 4.81% and investment loan rates currently from 4.94%. If your home loan rate starts with a 5 or 6, get in touch with the team at Perks Finance to complete a home loan review for you.

What are my options?

Whatever you do, get on the front foot and take control of your home loan by speaking to a professional finance broker about all your options. By doing nothing and simply letting it roll over, you will likely default to, what is generally referred to as the Bank Standard Variable Rate (BSVR). The BSVR is quite often higher than the interest rate you could get if you explore all the options available to you, or even if you re-sign at a fixed rate with the same bank!

With so many options to choose from, it’s important to consider all the home loan products from a range of lenders to ensure you are receiving a competitive rate that suits you best. Additionally, Perks Finance Relationship Manager, Steve Martin, recommends, “it’s important that you have a conversation with a professional broker about your financial needs and objectives, to ensure they match you appropriately with a loan package that meets these needs.”

There are a few different options you could consider, such as:

• taking out another fixed term;
• splitting your loan between a fixed rate and a variable rate (in the proportion that suits you); or
• refinancing with a different bank or non-bank lender.

As a recent example, Perks clients, Sue and Jo, were locked into a fixed rate of 1.99% for 2 years on their home loan. It was due to expire in the coming months when Steve prompted them to review their options.

“About the same time, their bank had sent them a letter explaining their options at the end of their loan term. The options presented were to lock in for a further fixed rate or rollover to a variable rate with a discount of 1.5% off the standard variable rate,” Steve explains.

“While this seemed attractive on the surface, we approached their lender and were able to negotiate a discount of 2.1% off the BSVR for Sue and Jo.”

“We also reached out to our panel of lenders to see if there were any better deals in the marketplace that would suit this couple’s needs.”

“We were able to find another lender offering a variable interest rate of 0.25% better than the lowest rate we were able to negotiate with their current lender.”

“0.25% may not seem like very much, but based on Sue and Jo’s loan size of $1.15m, we were able to save them around $10,000 per year on the original offer from their current lender.”

“In this instance, the new lender also offered a refinance rebate of $4,000 back to our client for refinancing. Given the cost to refinance was around $800, Sue & Jo gained over $3,000 back in their pocket within a few weeks after settlement.”

Refinance rebates can offset your costs to refinance, depending on the bank or lender. Steve explains that some rebates are only available via a broker and may come with far greater financial benefits.

“If a client goes direct to their bank or lender, they might not be offered a refinance rebate at all, or it may be significantly lower, around the $2k mark. Refinancing via a broker could potentially give you a rebate of up to $4k back in your account after settlement. These rebates also come in various forms – from dollars to frequent flyer points,” explains Steve.

These rebates also come with specific terms, for example, the discount to the BSVR offered with the rebate may only last a year before reverting to the BSVR. This is another good reason to speak to your professional finance broker before you sign any documents. It is also important to note that your professional finance broker has a legal obligation to act in your best interests and find you the home loan that best suits your needs at the time.

Why go through a professional finance broker?

Properly considering your finance options and working out your next step can sometimes be a daunting and time-consuming process. And there is no “one-size-fits-all” solution when it comes to shopping around for the best rates.

A savvy finance broker understands that these options should be assessed on a “case-by-case” basis. They should be able to work with you to gain all the information they need and use this to obtain a range of suitable loan packages from a broad network of banks and non-bank lenders.  Working with a professional finance broker allows you to cast a wide net and gain access to loan packages from a variety of lenders without multiplying your workload.

For more information or to enquire about the best way to structure your debt for your individual requirements, get in touch with the Perks Finance team.

_{Disclaimer: client names have been changed in this article for privacy purposes. Perks Finance Pty Ltd is not making any recommendations in this article.}