RBA Holds Rates: Is It Time to Refinance Your Home Loan?

When was the last time you actually reviewed your home loan or considered refinancing? Not just checked what interest rate you're paying, but looked at the whole thing and asked whether it still makes sense for your life, your finances and what you want to do next?

I ask because I see people who have had the same loan for years, all too often without even thinking about it. Meanwhile, chances are their property is worth more, their income has changed, they've paid down a chunk of the loan, they may have taken on other debts - or they may have completely different plans from when they first took out the loan.

A mortgage isn't something you set up once and forget about until the day you pay it off. Your circumstances change, and your loan can potentially change with them.

The RBA held rates today. So what?

The Reserve Bank held the cash rate at 4.35% today, following 3 increases earlier this year. The message from the RBA is pretty clear: inflation is still too high, and further rate increases haven't been ruled out.

If you're sitting there thinking, “I'll look at my mortgage when rates come down” - I'd suggest doing the opposite.

We don't know when the next rate move will be, or which direction it will go. What we can do is find out whether your current loan is still competitive and whether there are other things you could be doing with your mortgage now. This is where refinancing gets interesting. And exciting!

It isn't necessarily about waiting for the RBA to cut rates and hoping your bank passes the saving on. It can be about reducing your rate today, restructuring your loan, extending the term if appropriate to improve cash flow, consolidating expensive debt, or accessing equity that has built up in your property.

In other words, you don't have to wait for the RBA to do something before you do something yourself.

Your mortgage has more options than you think.

It's not just about getting a lower rate

Yeah, interest rates matter. If you have a $750,000 mortgage and can reduce your rate by 0.50%, that's around $3,750 a year in interest at the starting balance, or about $312 a month. On a $1 million loan, the same 0.50% difference is around $5,000 a year.

These are just simple examples, because your actual saving will depend on your balance, loan term, fees, loan structure and the rate you qualify for. But it shows why even a small difference in rate is worth investigating.

It could be about cash flow

If you've been paying your mortgage down for several years, you may have a much shorter remaining loan term than you realise. Depending on your circumstances, refinancing and extending the term back towards 30 years can reduce your required monthly repayment and give you more breathing room.

That doesn't mean extending the term is always the right thing to do. You may end up paying more interest over the life of the loan. But if your priority is improving monthly cash flow, it can be a very useful strategy to consider.

And sometimes that extra cash flow is the difference between feeling like you're constantly treading water and having some room to actually enjoy your money.

Your home may be worth a lot more than you think

Another upside people overlook.

If you bought your property several years ago, there is a good chance its value has changed. A new valuation likely shows that you've built up considerably more equity than you had when you originally arranged the loan. This potentially gives you options.

Perhaps you've been putting off the renovation you've wanted to do for years. Maybe you're looking at buying an investment property. You might you want to use equity towards another purchase or investment. There are so many possibilities, depending on your circumstances and what the lending actually allows. But you can't make a decision about equity you don't know you have.

What about the debt you've accumulated along the way?

Maybe you have a credit card balance, a personal loan, a car loan or several different debts sitting around. Some of those debts may be costing you considerably more in interest than your mortgage.

Debt consolidation can sometimes reduce the overall interest rate and simplify your monthly repayments. You need to look at the numbers properly. Rolling short-term debt into a 30-year mortgage isn't automatically a win. You need to consider the total cost, the loan structure and, importantly, how you're going to stop the costly debt building up again.

Sometimes your bank needs a push

You don't necessarily need to move banks. Your current lender may be able to offer you better pricing. Or there may be another lender whose policy is simply better suited to your circumstances now.

This is especially relevant if your financial situation has changed since you took out your loan. Maybe you're now self-employed. Maybe your income has increased. Maybe you've paid down the loan significantly. Maybe you've accumulated substantial equity. Maybe you have investment plans that weren't even on your radar five years ago.

The loan that was right for you then may not be the loan that is right for you now.

Ok then...what could your mortgage be doing for you?

We're all feeling the pinch, and this is a red-hot way to save some money.

Could you save a few hundred dollars a month? Improve your cash flow? Could you access equity for a renovation or investment? Could you consolidate expensive debt? Could you restructure the loan so it actually fits your current circumstances? Could you negotiate a better deal with your existing lender?

Possibly you're already in a very good position and there isn't anything worth changing.

I'll tell you that, if that's the case.

I don't think people should refinance for the sake of refinancing. There can be costs involved in changing loans - sometimes the best outcome is to stay exactly where you are.

But if you haven't had your mortgage properly reviewed in the last 12 months, it's worth finding out what your options are.

Send me a message saying REVIEW and I'll take a look.

I'll assess the rate, loan structure, term, equity, debts and what you're actually trying to achieve. If there is a worthwhile opportunity, I'll show you the numbers. If there isn't, I'll tell you.

Because your mortgage is probably one of the biggest financial commitments you have...you might as well make it work as hard as it can.

And if you discover you're saving $300 a month and you genuinely don't want or need the money yourself?

Give it to the kids. They'll think of something.

*Not financial