Is now the best time to refinance?

By Gerv Tacadena | 10 Dec 2019

Property investors should consider refinancing their investment home loans in the current interest-rate environment, according to a market expert.

The three rate cuts by the Reserve Bank of Australia (RBA) have made lending conditions ideal for refinancers, said Tim Brown, manager at Our Broker, in a think piece in Raine and Horne.

Brown said credit unions and mutual banks passed on the most recent 25 basis cut in full to borrowers, making their competition with major banks tighter.

"Consequently, the gap between the interest rates offered by the majors and the other financial institutions for investment loans could be as much as 50 basis points or 0.5%. In dollar terms, this difference could be as much as a couple of hundred dollars a month on an average $500,000 mortgage," he said.

Also read: 'Need to know' before you refinance

While some investors might consider fixing their rates, Brown said the possibility of future rate cuts by the central bank makes it practical to stick with variable rate cuts. Some lenders are offering variable interest rates below 3%, and these offers could drop lower.

Investors can try fixing a portion of their mortgage and leaving the rest under a variable rate, said Brown.

"This is a split loan facility and enables you to manage the risk of interest rate fluctuations effectively. At the same time, you can take advantage of rate cuts with the variable portion of the loan," he said.

When refinancing, it is also crucial for investors to watch out for unexpected fees. Some lenders do not include application fees into their advertised comparison rates, while others embed several fees in the fine print.

"These costs also have the potential to blow out the lenders' advertised rate," he said.

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