Australia’s borrowers have been given another reprieve, with the Reserve Bank of Australia leaving the cash rate on hold for a fifth consecutive board meeting in June 2024. With inflation remaining stubbornly high however, the RBA has retained the option of a further rate hike if needed. If you're considering refinancing your home loan, the process is simpler than you might think. Here’s a closer look at what’s involved in refinancing and how to know when it’s the right time to refinance.

Which way will interest rates go?

For the fifth time in a row, the Reserve Bank of Australia (RBA) has left the cash rate (OCR) unchanged at 4.35 per cent. Over the past two years, the OCR has increased from a historic low of 0.1% to 4.35 but has remained unchanged since November 2023.

However, the RBA could increase the official cash rate at its August board meeting if inflation remains above its preferred range of 2% to 3%, and RBA Governor, Michele Bullock, warns that Australia faces a “challenging time” trying to bring inflation back to the target range. Although inflation is easing, it’s doing so more slowly than previously expected, and it remains high.

Many of the major bank economists are forecasting that rates will start to fall by the end of this year. Economists from three of the nation’s big four banks (CommBank, NAB, Westpac) predict that the current level of 4.35% will be the cash rate’s peak, and that the first cut is likely to occur around November, with rates eventually dropping to around 3.10% by the end of 2025.

ANZ forecasts a similar outcome but with the first cuts to start around February 2025, and rates dropping to a level of around 3.60% by the end of 2025.

What are the reasons to refinance?

Whether you’re looking to save money, access different features or consolidate your debt, refinancing or changing your home loan could make sense in the following scenarios:

1. You want a lower interest rate. Every lender uses different measures to set their interest rates, so it’s worth getting advice from a Mortgage Express broker who can help you assess interest rates that may be available to you.
2. You want a loan that suits your current needs. Features like offset accounts, the ability to make extra repayments, or a split between variable and fixed rates offer flexibility and the option to pay off your loan sooner.
3. You want a fixed rate home loan. Knowing how much your repayments are makes it easier to budget and plan for. If you’re coming to the end of a fixed rate term, you may be able to refinance to a more flexible home loan or a favourable interest rate.
4. You need to pay off your other debts. Consolidating debts like personal loans, car loans or credit cards into your mortgage simplifies your finances and could save you money on interest charges.
5. You need to access equity. Whether you’re renovating your home or considering investing, accessing your equity lets you tap into the extra value in your home to pay for things like an extension or upgrade to your home, a family holiday, or an investment property.

How to refinance the mortgage?

If you’re confident that refinancing is right for you, here are some steps to take to get things underway.

1. Assess your current situation. Get clear on why you’re refinancing and what it is about your current home loan that isn’t working for you to be sure the benefits outweigh the cost.
2. Compare home loans. Look at all the fees and charges associated with a new loan, as well as features and add-ons that are important to you.
3. Determine the costs and your borrowing power. Talk to a Mortgage Express broker and use online calculators to work out whether a switch will help you save money.
4. Apply for a home loan. Typically a bank or lender will assess your income and mortgage repayment history, as well as other loans and financial commitments. They may also complete a property valuation to work out how much your home is worth.
5. Approval and settlement. Once your application is approved, you’ll receive a letter of offer and contract for your new home loan. When you’ve signed the loan contract, settlement occurs, and your new home loan is used to pay off your current home loan.

Get professional advice

Navigating the complexities of refinancing on your own can be challenging. Work with a finance consultant or mortgage broker from Mortgage Express, to get a financial plan that’s tailored to your circumstances. They can also provide expert advice to help you make informed decisions about refinancing, and help you get the most out of your mortgage. Contact a Mortgage Express mortgage broker today to find out more about your options for refinancing.

While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.

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