Benefits and pitfalls of refinancing

THERE can be a huge disparity in interest rates on offer between banks at the moment, or even with the same bank depending on your level of LVR (Loan to Value Ratio), your purpose (home or investment) and what features you want (redraw, offset, Frequent Flyer points etc). That disparity is seeing borrowers squeezed by successive rate rises taking stock of their current mortgage situation and looking for savings wherever they can, leading to huge volumes of refinances.

Your bank wants your business. But another bank probably wants it more. At least, that is the impression you would get looking online and seeing the wide range of offers on hand for new and refinancing (but not existing!) customers. I’m told that there was a time where a long relationship with your bank and good terms with your bank manager made a difference when it came to your loan. Unfortunately, this doesn’t appear to be the case anymore, and most banks are so voracious for NEW business, they will offer all kinds of enticement to have someone change over, but potentially forget about the people that have already signed up with them. If you want to know how those existing customers feel about that, the comments section of any major bank’s posts on Facebook is a great place to start for the entertainment value alone.

Given the difference that a 1 per cent drop can make in your rate (that’s four increases covered), not looking at your mortgage can be an expensive exercise.

There are of course downsides to refinancing (because there has to be, right?). You do have to go through the full application process with a new bank – employment history, pay slips, other lending, spending habits and more. Given the changing requirements for lending now too, you might find that a new bank lending today will not let you borrow as much as you could 12 months ago. In early 2022 they assessed you at a 5 per cent interest rate. Today it could be 8 per cent or higher. The plus side though could be that cheaper rate and even a few thousand dollars in cash back (minus costs) which is also handy.

Alternatively, while your bank might not offer all the goodies to keep you, retention teams often have at least something up their sleeves, and for no more than a phone call – that’s better than a poke with a sharp stick.

Tom Quaid is the REIQ Zone Chair for Cairns