The competition between the big four lenders is a boon for borrowers who are in the process of refinancing. In addition to the interest rate saving, some lenders are also offering cash rebates, flexible repayment terms, and waived break fees in some cases.
Despite these relatively favourable circumstances for borrowers, it is important to note that banks are still sensitive to further property price declines. ADI’s – such as the Big Four Banks – remain very selective in their lending criteria In light of the above factors, now may be the time for borrowers to consider their options and to take advantage of the competitive mortgage refinancing market.
One key consideration in deciding whether to refinance is affordability and in addition to considering the savings, the aspiring borrower should ensure that they can comfortably repay their loan. This includes factoring in any additional costs associated with making the switch (e.g. break costs from exiting the existing loan, establishment and discharge costs, etc).
It is also essential to take into account other factors such as non-interest costs and the length of the remaining loan term of the existing loan. Mortgage refinancing has been booming in recent months, as the Reserve Bank of Australia’s aggressive monetary tightening has pushed up mortgage rates.
This financial pressure has caused borrowers to search for a better deal and take advantage of the competitive mortgage refinancing market. Lenders had been assessing mortgage serviceability using a 3% buffer required by the Australian Prudential Regulatory Authority, but recently have been changing their criteria in order to make it easier for borrowers to refinance.
The Commonwealth Bank of Australia was the first to override APRA’s 3% buffer, allowing a 1% buffer provided a range of criteria were met. Since then, Westpac and National Australia Bank have followed suit. NAB recently noted that they will make exceptions for borrowers who are “regarded as a good credit risk,” as long as they have a good repayment history.
Borrowers have the opportunity to save on their interest rate while also being able to receive cash rebates, flexible repayment terms, and break fees waived. However, banks remain sensitive to any further property price declines. These factors should be considered before deciding to refinance.
Additionally, borrowers should factor in any additional costs associated with making the switch such as any break costs, establishment costs, and/or discharge costs. When assessing whether to refinance, it is pertinent to consider affordability. Borrowers should ensure that they can comfortably repay their loan, taking into account non-interest costs and the length of the remaining loan term.