Negotiate a better deal at the bank

ABOUT 20,000 people a month are refinancing their home loans as they struggle to cope with rising interest rates.

Negotiate a better deal at the bank

THE decision by banks to whack on a bit more after the last two Reserve Bank cash rate rises means that borrowers have effectively had six interest rate rises this financial year, Mortgage Choice's Warren O'Rourke said.

As a consequence, the broking firm has seen a fair amount of inquiry about the refinancing of mortgages.

According to the Australian Bureau of Statistics, the number of people refinancing their mortgages now stands at about 20,000 a month.

And about two thirds of those who refinance end up with a new loan from the same lender, suggesting the lenders are prepared to come up with a better deal for those who ask.

"It is a very competitive market at the moment and there can be great benefit in people shopping around and re-examining their home loan provider and product periodically,'' Mortgage and Finance Association of Australia chief executive Phil Naylor said.

Of those people who said they benefited from changing their mortgage, 70.4 per cent ended up with a lower interest rate, 64.8 per cent got better loan terms and conditions, 61.1 per cent received better service and 48.1 per cent got a better fee package.

But refinancing is not for everyone, Mr O'Rourke said.

"If they've had a mortgage for more than four years they would be better off than those who have had a mortgage for a only couple years because of the deferred establishment fees. If they've fixed the loan and break it they will have exit fees,'' he said.

"If it's a new or different product within the same lender, the refinancing costs would be lower.''

While the seemingly insatiable desire for debt that has spurred the great shop of the past couple of years looks to have been finally stemmed, many of those left with the debt are now struggling.

And many are wanting to consolidate their debts into their mortgage.

But loan providers are wary of encouraging this unless there is a change in spending behaviour.

When weighing up the pros and cons of refinancing, borrowers need to examine their overall financial position and, if suffering stress caused by their debts, take action to change their situation or behaviour as quickly as possible.

"We need a clear definition of what they are going to do about changing their habits,'' Mr O'Rourke said.

"We have to be sure they don't end up in the same situation in a year's time. They have to come up with a budget, chop up their cards.''

Mortgage stress should not be a issue, he said. People need to factor in a buffer to ease the pain.
Mr O'Rourke said another strategy was fixing all or part of the loan for a number of years.

"I believe that more first home buyers are fixing. They need that level of certainty,'' he said.

"They're splitting the loan with a major component fixed, while they can still make extra repayments on the variable part.''

Does he see an end to the rate increases?

"I would think the Reserve Bank would take stock of the extra rate increases by the banks,'' he said.

"There may be one in May, depending on the inflation figures that come out at the end of April.''

He said the effects of the November rate hike were just kicking in now because people don't stop spending over Christmas.

"Australia goes back to work on February 1 when schools go back, so I think that in February they were looking at what they had spent and are now reeling in their spending,'' Mr O'Rourke said.

"They've reconciled their summer spend in February, then get hit again in March.''