Aussie homeowners facing yet another cash rate hike in November 2023 are understandably concerned about the impact that rising interest rates will have on their mortgage repayments. Going from a low of 2.85 percent a little more than a year ago to a new high of 4.35 percent, the latest cash rate hike has seen several banks push up mortgage rates. But not all lenders and there are still interest rate deals to be found. If you are considering refinancing, non-bank lenders may be a suitable option.
The rise of non-bank lenders
Over the last few years, market share for non-bank lenders has grown rapidly, indicating that Australian borrowers are increasingly looking for alternative financing options, and many are turning to non-bank lenders.
Non-bank lenders are specialist lenders that typically help higher-risk borrowers whom major banks may have declined for reasons such as credit history or employment status. Since non-bank lenders are not regulated by the Australian Prudential Regulation Agency (APRA), they assess repayments differently and generally offer more flexibility when it comes to assessing existing and new debt.
One reason non-bank lenders are growing in popularity is because they offer competitive interest rates and lower fees on their home loan products. In some cases, interest rates offered by non-bank lenders are lower than those of traditional banks, because they borrow funds at wholesale prices and generally have far lower overheads, so can pass on these savings to home loan borrowers.
It’s worth keeping an eye on interest rate movements, and comparing how your interest rate stacks up against what’s available in the market. If you do notice that your interest rate is increasing faster or higher than that of other lenders, it may be worth looking into refinancing.
Tips for refinancing
Here are our top tips for refinancing:
- Talk to your mortgage broker first. Before switching lenders to refinance, have your mortgage broker go over your existing home loan to see how it compares to other deals that your lender may be offering. Refinancing with the same lender could save you from having to pay break fees you may be charged to move to a new lender.
- Know how much equity you have in your home. The more equity you have the better, as lenders are inclined to offer better rates to borrowers with a lower loan-to-value ratio (LVR) when it comes to refinancing a loan.
- Work out the costs to refinance. Before refinancing, add up the total costs of moving your loan to a new lender and compare it to any savings you’ll potentially get from lower interest rates. It might not make financial sense to switch loans just yet.
- Reduce your credit card limit. To improve your borrowing power, reduce your credit card limit and pay down existing debt.
- Don’t change your loan term. Increasing the term of your loan will increase the cost of your loan over its lifetime, which goes against the reason you’re choosing to refinance – which is to save money.
- Watch out for honeymoon rates. Some lenders offer discounted “honeymoon” rates and cashback deals to attract new borrowers that only last for a limited introductory period. They typically revert to a higher rate further down the line, which may end up costing you more.
Before deciding if refinancing is right for you, talk to a mortgage broker about your options. A Mortgage Express broker can compare multiple lenders and help you determine which lender offers the best savings in your situation. Contact a Mortgage Broker today.