Homeowners are told to do their research before fixing their mortgages, after the Reserve Bank kept interest rates at 0.1% on Tuesday.
With little leeway for interest rates to fall further and negative rates unlikely in the face of a stronger-than-expected economic recovery, many mortgage lenders will wonder if now is the time to lock in their rates.
But although analysts have said The new daily Rates were unlikely to drop much lower, they cautioned homeowners against rushing to repair as variable loans are more flexible and loan changes can be expensive.
RateCity.com.au research director Sally Tindall said fixing home loans would make sense to some people as banks were offering some of the lowest fixed rates on record.
But she said they usually have caps on additional repayments, which extends the loan term, and often don’t have access to a clearing account.
“Plus, if you want to get out early, there may be a steep break fee,” she says.
Canstar editor-in-chief Effie Zahos said fixing your mortgage seems like a ‘no-brainer’ at the moment, given that the average Big Four customer pays 3.6% and the cheapest rate over three years is 1.75%.
Ms Zahos said that someone making the change would save around $ 370 per month and “sleep well at night knowing [their] payments will be fixed at this amount over a given period ”.
But she advised owners to read the fine print first.
First, she says, people refinancing should avoid extending the term of their loan.
So if they initially took out a 25-year mortgage and stayed with their lender for five years, they need to make sure their next loan is for 20 years.
“Otherwise, the benefit of getting a cheaper loan is wiped out because you’ve extended your term. [and will therefore pay more interest over the life of the loan]. “
Second, borrowers should check if they have any money in a withdrawal or clearing account.
Offset accounts are easily accessible and will have no impact on their refinancing plans. But withdrawal accounts are held as part of the home loan, so borrowers will need to decide with their lender whether to withdraw the money held in that account or whether the lender absorbs it into the loan, which would reduce the amount of money held in that account. amount they need to borrow.
“You have to make a call about it, otherwise you might lose [access to the money]Ms. Zahos said.
Finally, borrowers should know how much their lender will charge to switch loans, so they can determine how long it will take to recoup even after the switch.
“You have to add up all the fees needed to move – and there are fees, because you might need an assessment fee, you will have a settlement fee and a discharge fee,” Ms. Zahos said.
“And if the change costs $ 1,000 and you only save $ 50 per month, it will take you 20 months to recoup the moving expenses – [by which point], can you guarantee that your new lender will again be the cheapest on the market?
So if you are just chasing the rate you have to be careful not to get caught [with] high fees. “
Ms Zahos added that not all homeowners will be able to get a competitive fixed rate, as the lowest rates are only available to people with a low loan-to-value ratio.
“And if you’ve borrowed over 80 percent and you’re still very well oriented… then you may have to pay mortgage insurance again from the lenders if you change,” she says.
“My biggest gripe with mortgage default insurance is that it is not transferable between lenders.”