March 19th 2020, saw the Reserve Bank of Australia announcing an emergency interest rate cut the subsequently reduced the cash rate to an unparalleled 0.25 basis points. Not all banks have responded to the change with communication advising changes may take effect early April 2020.
Initial announcements from a few have set the scene for a new environment for customers for both owner occupied and investment lending with record low fixed rates. A few months ago, news headlines were advising cheapest rates in the three’s and now we are looking at low two’s with even some in the high ones for fixed rates.
Let’s delve deeper together to work out your benefits and what protections can be available with these unprecedented lower rates on the market.
Is now the time to Refinance?
The current offering through fixed rates from lenders are at staggering low range. We are seeing rates from lenders starting a 1.79%. with the vast majority being in the range of 2.09% to 2.99%.
With rates at such unprecedented lows for customers with half a million-dollar mortgage, these changes could see them saving in excess of $10,000 a year.
Many experts in the industry are stating its “never been a better time to refinance”
Customers in this unsteady climate may be wondering whether there is possibility the rates may drop further. And this is a valid thought process if we look at historical data, when the RBA decreases the cash rate lenders at times do not decrease their rates by the same percentage, we may see 15 to 20 basis points. The lenders believe they have to keep a little bit up their sleeves to be able to offer incentives down the track if need be.
We agree no one has a crystal ball to know exactly what the future holds but suggestions are with a 0.25 basis points cash rate, the lowest in history, many experts are asking whether it can go much further/ cheaper.
While experts are stating now is a good time to review and approach your current lender or mortgage broker, it is important for customers to weigh up all the pros and cons with the information presented especially with some fixed rates having limited features.
Fixed rates can be problematic in terms of what they offer as a product with additional/ extra repayments being capped and redraw facilities often not being available.
A holistic approach is required when reviewing options presented and we find that a combination approach may benefit customers with a part variable and part fixed solution.
During this time some customers looking at the considerable drop in rates may be looking at breaking previously fixed loans in order to refinance. Customers in this position could have fixed for 3% to 4% and need to realise breaking these will have an exceptional expense.
In such circumstance again exercise caution when reviewing and weigh up the cost to break against the potential benefit of refinancing.
Refinancing to a lower interest rate or combining a fixed rate and variable rate solution can give some customers relief in what has become uncertain times, further steps depending on a customer’s circumstance and near future prospects are available.
In our recent communication through newsletter and the letter from Dallas Brooks, we advised that hardship and deferring payment options are a mortgage anxiety solution.
Australian Prudential Regulation Authority (APRA) has stated in these unprecedented times banks need adjust their policies in order to support their customers.
Each bank/ lender will vary in their adjustment of policies but most of them are looking at repayment deferral whereby they shall put your loan on pause for 3 months to 6 months. Two options are then available to customers where they may pay a higher repayment after the deferral period to ensure the loan term of their mortgage remains unchanged OR pay the same repayment as normal and extend loan term by months.
Other options available may include converting to interest only repayment for a period of time or assisting with debt consolidation.
Refinancing and Social Distancing:
Given the current time with are living in and the restrictions implemented, online banking and online brokering has really come into its own.
It is important for people to realise that even with these restrictions especially those surrounding social distancing, you do not have to hit the pause button on reviewing your finances.
The above outlines what is possible during these times of low interest rates along with options available to assist with your livelihoods and what benefits are available to protect yourself.
Your mental and financial well being is our priority and now may be the right time to look at your options, review whether your current lender has passed on RBA cash rate decreases and if not will they be, would it be beneficial to you to look at fixed rates or a combination of both.
Click on the link below to book your time with us and together we shall get through these times.