New data from the Australian Bureau of Statistics (ABS) has revealed that a large number of borrowers throughout the country are refinancing their home loans.
After borrowers refinanced a record $19.4 billion of loans in November, they followed up with another $19.1 billion in December, which was the second-largest month in refinancing history.
ABS head of Finance and Wealth Sean Crick said the refinancing surge was a direct result of the Reserve Bank of Australia’s (RBA) cash rate increases.
“Recent months saw record high refinancing activity for both owner-occupiers and investors. Borrowers continued to switch lenders for lower interest rates as the RBA’s cash rate target rose,” he said.
Why consider refinancing?
Refinancing is when you swap one home loan for another – usually at a different lender (changing home loans or interest rate at your same lender is called repricing). As Mr Crick noted, the main reason people refinance is to switch to a lower interest rate.
The mortgage market is fiercely competitive, with dozens of lenders vying for business. So even if you got a great rate when you took out your loan, there may now be other lenders willing to offer you an even better rate.
It’s also possible your financial situation has improved since you took out your home loan – perhaps because your household income has increased or your equity has grown. In that case, lenders may be willing to offer you more favourable interest rates than before.
There are two other reasons refinancing can be a clever decision.
First, because lenders are hungry to win new business, they often offer lower rates to refinancers than their existing customers. Second, they may also throw in sweeteners, such as cashback deals.
