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When Is The Right Time to Refinance?

By Silvia Wei

Lenders and brokers tout refinancing as a sure-fire way to save time and money on a mortgage.

But the latest statistics from the Australian Bureau of Statistics show that for the past year, mortgage refinancing is on a downward trend.

The statistics for owner-occupier refinancing showed a fall of 1.7% in April 2017, following a fall of 2.1% in March 2017. Adjusting seasonally, this represents a fall of 4.5% in April and a 3% fall in March.

The volume of refinancing decreased by 19.6% in April over March, representing a drop of 18.8% in the value of refinancing.

Looking further, the purchase of established dwellings for owner-occupation fell by 20% in April over March. The number of dwellings purchased for investment by individuals fell by 2,401 from April to March.

The refinancing figures follow an overall decline in housing finance value of 0.4%, with owner-occupied housing take-up falling by 0.1% and investment housing falling by a full 1%. The only positive trend is in the construction of new houses, which rose by 0.6%.

No change in the cash rate – no movement in refinancing

The Reserve Bank of Australia’s official cash rate has held steady since August 2016 at 1.5%. From April to July of 2016, the cash rate decreased by half a basis point. This corresponded with an increase of refinancing numbers in May and June.

However, despite the cut in interest rates to 1.5% in July 2016, the value of refinanced dwellings fell 8.1%, recovering slightly in August with a 1.9% increase over the previous month. Of course, that doesn’t replace the value of the dip.

With interest rates showing no sign of moving up or down in recent months, is the value proposition for refinancing a harder case to make?

Looking for a better deal is always better

It’s quite possible the homeowners who purchased homes two or three years ago will push a surge in refinancing as they approach new lenders and brokers with greater equity in their homes, giving them an advantage in the marketplace.

CEO of Savvy, Bill Tsouvalas agrees with waiting to refinance your home loan instead of jumping head first into trying to find potential savings.

“Refinancing only a year or so after you purchase a property is not a good idea,” Tsouvalas says. “It might cost consumers more in re-establishing a new mortgage than any potential savings.”

Homeowners that have more than 20% equity in their home will not have to pay extra for Lender’s Mortgage Insurance. This could explain why some people are holding off on refinancing until they reach that limit.

“LMI is a substantial cost to a homeowner, and waiting until you can waive it is a good idea. Consumers should always look around for better deals, just to keep their eye on the market. Once something comes up that’s right for them, they can pounce on it. A broker can help you do that, after you discuss your needs and expectations.”


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