Property prices may fluctuate in the short-term, but, historically, property prices in Australia tend to increase over the long-term.
For example, for the year to February 2023, property values decreased in most locations as the chart from Core Logic shows:
But regional housing values were still 30.7% higher in February 2023 than in March 2020, before Covid-19. And property values in the combined capitals were 10.4% higher, according to Core Logic.
Property values started falling as interest rates started rising in the middle of 2022, but property values had previously risen so much during 2021 and 2022 that the recent losses have not wiped out the gains.
What does this mean for homeowners?
- If you bought a property in the past year, it may be worth less than what you paid for it right now but history suggests it is likely to recover its value in the future
- If your property decreased in value, you should be careful about refinancing your mortgage because you might have to pay lender’s mortgage insurance
- If you bought your property several years ago, your property’s value will most likely have increased and refinancing your mortgage could save you money
Why do people refinance their mortgages?
People refinance their home mortgages for two main reasons:
1. To pay less interest
If you refinance your home mortgage to get a better interest rate, it could save you a lot of money.
For example, a $500,000 mortgage financed over 30 years at 6.75% interest will cost you $667,477 in interest. If you refinance your home mortgage, five years into your loan term, at 6.00% interest, your total interest cost will be $601,840 (5 years at 6.75% + 25 years at 6.00%).
Although the cost of refinancing may cost you about $2,000, in this scenario you’d still save more than $63,000 by refinancing your home mortgage.
2. To access additional cash
People may increase their home loans if they need money, for example to consolidate their debts or renovate their homes. But this increases their debt and will generally cost them more over the long-term.
What refinancing deals should people consider?
Many lenders offer mortgage refinance deals. One of the popular ones is cashback for refinance.
Cashback for refinance is an incentive by lenders to entice you to switch your home loan to them. If you take up this offer, they will pay you a certain amount, known as the cashback amount.
To get the cashback you must agree to switch your loan. So if the lender is not offering you a lower interest rate for your mortgage refinance, you could end up paying more in interest than the cash you receive as an incentive.
Quick tips for mortgages refinance:
- It’s okay to be loyal to your mortgage broker, but you could be wasting money by being loyal to a specific lender if you’re not getting a great deal from them
- Ensure there is at least 20% equity in your home to avoid paying lender’s mortgage insurance again
- Check your finances – refinancing a mortgage is similar to applying for a mortgage for the first time: a higher credit score increases your chances of being offered a lower interest rate
- Budget for all the costs of refinancing your mortgage, including discharge, settlement and legal fees
- Check the valuation – if you feel the lender has undervalued your home, explain why and ask the lender if they can get a second opinion with a different valuer
If you want to save money on your mortgage, speak to Loan Station about your refinancing options.
