Lenders likely to stop handing out ‘free money’, says Finder

Australian borrowers are being warned by one of Australia’s biggest comparison websites finder.com.au (http://www.finder.com.au/home-loans), to brace themselves for a disappointing year ahead with lenders likely to stop handing out ‘free money’.

According to the latest finder.com.au monthly survey of Australia’s leading economists, the interest rate cycle could have hit the bottom and interest rates are likely to rise in the next year or two.

With no further interest rate cuts expected, borrowers are facing a tougher outlook compared to the ‘free money’ handed over by lenders from passing on rate drops. In fact, the average standard variable home loan rate in the finder.com.au database has fallen by 0.61 percentage points since December 2012, which is $117 handed back in monthly repayments for a $300,000 home loan.

source: finder.com.au, monthly repayments based on $300,000 loan over 30 years
source: finder.com.au, monthly repayments based on $300,000 loan over 30 years

Michelle Hutchison, Spokesperson at finder.com.au, said borrowers should start preparing now for a tougher year ahead.

“It’s great to see so many borrowers taking advantage of the low interest rates on offer and refinancing their home loans this year. With next year looking tougher for borrowers, we are urging more borrowers to consider refinancing and switch to a better deal before rates rise.

“This year we’ve seen 160,549 refinanced home loans to October 2013, according to the latest Australian Bureau of Statistics (ABS) figures, released today. One in every three loans were refinanced each month.

“The value of refinanced home loans has reached over $4.9 billion in October – the highest value for refinancing we have ever seen!

“There were also 732 more refinanced home loans in October than September and 1,283 more refinanced loans in October 2013 compared to October 2012.

“Mortgage holders should consider home loans that offer a lower rate and work out if they can save money by refinancing in the new year. With the ‘free money’ drying up, it’s time for borrowers to find their own savings by comparing deals, which will lessen the impact of rising rates down the track.”

What borrowers should consider before refinancing:

  1. How much will I save by switching to a lower rate? Use a calculator to compare different home loan rates. There are several useful calculators on finder.com.au (please link to: http://www.finder.com.au/home-loans/home-loan-calculators).
  2. What exit fees will I have to pay? Work out how much you save compared to the fees you may have to pay.
  3. Was my loan opened after July 1, 2011? You won’t be charged early exit fees on variable rate home loans but break costs still apply for fixed loans.
  4. Am I refinancing to renovate? Compare different home loan types that offer free redraw or a line of credit facility.
  5. How much equity do I have? If you have less than 20 percent equity it is probably not worth refinancing, as you will have to pay Lenders Mortgage Insurance again.

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