Interest rate rise pain: why it’s time to consider refinancing

Australians can dramatically reduce the financial pain caused by soaring interest rates by following a few important steps.

Australians are more likely to research their phone plan than their home loan, and soaring interest rates mean now is the time to change this.

As many households spend $1000 a month more on mortgage repayments than they did seven months ago, new research by non-bank lender Pepper Money has found a majority of people accept the first loan approval they get.

Its Money Mindset Report says two thirds will research insurance products before deciding and 71 per cent will research phone plans first, while for loans the proportion is 60 per cent.

Fear of rejection and time pressure are the biggest culprits, it found. Pepper Money CEO Mario Rehayem says while people often worry about being turned down for loans, the rising pressure on household budgets means “every dollar counts”.

“When it comes to a big financial decision like a home loan, it can feel extremely overwhelming trying to understand what different loan options may be available,” he says.

GET HELP

Assistance from a mortgage broker can make a big difference, Rehayem says.

“It can potentially change a flat ‘no’ to a ‘yes’,” he says.

“The volume of homeowners refinancing their mortgage has risen rapidly in the past few months and that trend is likely to continue.

Pepper Money’s Mario Rehayem says every dollar counts when seeking mortgage savings.

“With the cost of living pressures on everyone’s mind right now, and as many borrowers who took out super-low fixed rates during Covid roll off their fixed terms, a lot of Aussie homeowners will be looking to find a better deal.”

Lenders are recognising this opportunity and offering ultra-competitive loans, Rehayem says.

Digital lender Tic:Toc’s chief marketing officer, Laura Osti, says “there are home loan advertisements everywhere” at the moment and refinancing can have a big impact on household costs.

“Even just a few percentage points difference can save you tens of thousands of dollars in repayments over the life of your loan,” she says.

“Many customers who locked in a fixed rate ahead of the rate increases face steep rate increases when they roll off to a variable rate – in fact, it’s expected that over $400bn worth of fixed-term home loans are set to expire by the end of 2023.

“Rising interest rates means it’s incredibly tough out there for a lot of people. Rates have gone up by 2.75 per cent since April 2022, so on a $650,000 home loan on a variable rate, that’s at least an extra $1000 to allocate in the monthly budget.”

TALK WITH FRIENDS

Osti says getting a better mortgage deal can start with talking among your social circle to compare interest rates and loan features.

“I think we should be talking openly about money issues with each other more often, particularly now when most of us are feeling stretched,” she says.

“You may learn about new lenders, and get some good tips along the way.”

Comparison websites are a good next step, Osti says, and borrowers should check for differences in fees and look beyond traditional banks.

“The last few years have seen a number of non-traditional and digital lenders come into the landscape, and because they operate with lower overheads and streamlined processes, they can often have better rates, simpler processes and faster turnaround times,” she says.

Some borrowers are becoming “mortgage prisoners” as their repayments rise while property values fall, reducing their ability to service a new loan.

“If you can’t refinance to a different lender, try for a better rate,” Osti says. “There’s no easy answer, but it’s certainly worth speaking to your current lender and asking for the best rate they can give you, as well as assessing your options from different lenders.”

Tic:Toc’s Laura Osti says talking with friends and family about loans can be a good start.

STEPS TO REFINANCE AND SAVE

• Ask for help from lenders and mortgage brokers who can help with paperwork and negotiate good deals.

• Look beyond the traditional lenders, which often charge the highest fees and interest rates.

• Shop around for a better deal – comparison websites can deliver a good snapshot of options, and be sure to check more than one site.

• Consider consolidating multiple debts into a single loan to save on interest.

• If rising interest rates have trapped you at your existing lender, ask them to reward your loyalty with a lower interest rate.

Source: Pepper Money, Tic:Toc

Originally published as Interest rate rise pain: why it’s time to consider refinancing