30 Jun 2023

Should You Refinance Your Mortgage? How To Lower Your Repayments Even When Rates Are Rising

As mortgage holders, it's disheartening to see our monthly repayments increase. Many Australians believe there's nothing they can do about it, assuming they have no control over the decisions made by the Reserve Bank of Australia (RBA). However, there is a glimmer of hope. While we may not have power over the RBA, we can take matters into our own hands by contacting our banks and requesting a better deal on our home loans.

In this blog, we'll outline the steps you can take to potentially lower your home loan interest rate and save money. By understanding the strategies to negotiate with your lender and knowing the factors that can strengthen your bargaining power, you'll be equipped with the knowledge to make informed decisions about refinancing your mortgage.


Researching Your Options

Before you approach your lender, it's essential to gather the necessary information to support your negotiation. Start by researching the current entry-level interest rates offered to new customers, both by your own bank and their competitors. This information will serve as a benchmark for the rate reduction you're seeking. Additionally, familiarize yourself with the rates of their competitors to have a broader understanding of the market.

Pro Tip: If the bank or lender offers anything less than 0.5% reduction, don't hesitate to push for more by highlighting your loyalty, regular payment history, and willingness to switch lenders for a better deal.


Strengthening Your Bargaining Power

To maximize your chances of securing a lower interest rate, it's important to bolster your bargaining power. Lenders are more likely to consider your request if you meet certain criteria. Here are the factors that can enhance your position:

  • Longevity with the Lender: Being a long-standing customer with a strong track record of timely repayments demonstrates your commitment and reliability.

  • Additional Payments: Making extra payments towards your mortgage shows your dedication to reducing your loan balance and can be viewed favorably by lenders.

  • Stable Employment: Holding secure, full-time employment for at least 12 months indicates a steady income stream, reducing the lender's risk.

  • Loan-to-Value Ratio (LVR): Having a low LVR, meaning a high level of equity in your home, provides a sense of security to the lender.

  • Healthy Credit Score: Maintaining a good credit score reflects your responsible financial behavior and strengthens your overall financial profile.

  • Owner-Occupied Property: Living in the property rather than renting it out as an investment signals your commitment to the home and can be perceived as less risky by the lender.


Initiating the Conversation

Armed with the knowledge of market rates and your own position of strength, it's time to contact your lender and request a lower interest rate. While email may seem convenient, it's best to make a phone call to the home loans team. Speaking directly to a home loan specialist allows for a more personal and persuasive conversation.

Remember, the goal is to negotiate a rate reduction of at least 0.7%. Begin by asking for a 1% reduction and be prepared to settle at 0.7%, ensuring you leave some room for negotiation.


Handling Refinancing Fees

If your lender agrees to lower your rate, they may propose a refinancing fee. In this instance, it's important to hold your ground and politely insist that the fee be waived. Remember, successfully negotiating a lower home loan rate should not incur additional charges.


Exploring Alternatives

While negotiating with your current lender is a viable option, it's worth considering alternatives. Other lenders may offer more competitive rates and incentives to attract new customers. By exploring the options available in the market, you can compare rates, fees, and features to ensure you secure the best possible deal.


The Benefits of Refinancing

Refinancing your mortgage can offer several advantages beyond just a lower interest rate. Here are some potential benefits to consider:

  • Reduced Repayments: With a lower interest rate, your monthly repayments will decrease, providing some financial relief.

  • Savings Over Time: A lower interest rate can result in significant savings over the life of your loan, allowing you to redirect funds towards other financial goals.

  • Access to Equity: Refinancing can provide an opportunity to access the equity built up in your home, which can be used for renovations, investments, or other purposes.

  • Consolidating Debt: By refinancing, you have the option to consolidate high-interest debt into your mortgage, potentially reducing your overall interest payments.

  • Improved Loan Features: Refinancing enables you to explore loan products with additional features that may better suit your current financial situation.


Considerations Before Refinancing

Before proceeding with refinancing, it's crucial to consider the potential drawbacks and assess whether it aligns with your financial goals. Here are a few factors to keep in mind:

  • Costs: Refinancing may involve upfront costs such as application fees, valuation fees, and legal fees. It's important to weigh these costs against the potential long-term savings.

  • Break Costs: If you're currently in a fixed-rate loan, refinancing may incur break costs, which can offset the benefits of a lower interest rate.

  • Long-Term Goals: Consider your long-term financial goals and how refinancing aligns with them. Ensure that the benefits outweigh any potential disadvantages in the context of your overall plan.


Seeking Professional Advice

Navigating the complexities of refinancing and determining the best course of action for your specific circumstances can be challenging. Seeking advice from a mortgage broker or financial advisor can provide valuable insights and help you make informed decisions.

Remember, refinancing is a significant financial decision, and thorough research and careful consideration are essential before proceeding.


Unlock Savings: Empower Yourself by Negotiating a Better Home Loan Interest Rate

While the decisions of the Reserve Bank of Australia may be out of our control, we have the power to negotiate with our lenders for a better home loan interest rate. By conducting thorough research, strengthening our bargaining power, and approaching the conversation with confidence, we can potentially save money and achieve our financial goals.

Remember to weigh the costs and benefits, explore alternatives, and seek professional advice when necessary. With the right approach, refinancing your mortgage can be a strategic move towards a brighter financial future.


Need A Hand?

If you want to explore your next steps, our team of real estate experts at Aurora Realty can help. Whether you are refinancing, buying, investing or selling, we have the expertise and connections to fast-track your property goals. Get in touch with our team today to see what we can do for you.

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