Home Loans & Property
By Maddie Fleming/02 Sep 2020/Three-minute read

Refinancing your loan to take advantage of the best home loan rates could net you enough savings for a holiday, help you consolidate debts or even unlock equity in your property.

Have you reviewed your home loan rate in the last two years? If asked, would you know your current rate off by heart? If the answer is no to either of those questions, it’s time for you to talk to your broker about refinancing.

What does refinancing mean?

Refinancing your loan simply means moving your loan from one lender to another to get a lower interest rate. Refinancing allows you to reduce your monthly loan repayments and pay off your loan sooner.

When is the best time to refinance your home?

Refinancing your home loan every 2-3 years is a smart way to manage your loan. Not only does it give you the chance to secure a better deal, consolidate your debts and save interest, but in some cases, it also gives you an opportunity to unlock equity you have in your property. This equity can be used to purchase another property, invest in shares or pay for your next holiday or car.

Why do I need to refinance?

You may be wondering why your home loan interest rate is no longer the lowest in the market. Well, interest rates fluctuate and each time they do, lenders reduce the rate for new home loan customers but unfortunately don’t reduce it for their existing customers.

Over time, this creates a gap in rates between new customers and existing, which is called the ‘loyalty tax.’ Loyalty tax is when banks take advantage of your loyalty by charging you a higher rate than their new customers, which means the longer you stay with the same lender without a review, the higher the loyalty tax you’ll end up paying.

For example, let’s say that over five years the interest rate moves up or down 10 times by 0.25%. Each time, the lender drops the new customer rate by 0.25% but only drops the existing customer home loan rate by 0.2%. This means that across the 10 rate movements you’ll be paying an extra 0.5%, which equates to $2,250 extra interest cost per year. That’s $67,000 over a 30-year loan term!

How to find the best home loan rate

The first step towards saving money on your home loan is to take a look at your current rate to see how much you’re actually paying. Once you’ve done that, it’s best to get in touch with a mortgage broker so they can assess your options and walk you through the process to refinance.

It's time to refinance!

Book your refinancing assessment with one of our Adelaide mortgage brokers.

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