Refinance
Why Should I Refinance?
You may want to review your options for non-financial reasons like better service or a bank that aligns with your values. There are also several financial benefits of switching lender. You may not be getting your lenders best offers, so reviewing your options can help you save money.
Lower Rates
Cash Contribution
Restructure
Costs
Lower Interest Rates
After staying with the same lender for a period of time, they may assume you are going to continue staying with them. Rather than reward this loyalty, you may see the offers or discounts they provide aren't as attractive as they used to be. There may be special deals on offer with other lenders or another lender that will continue to offer you their best rates. Whether it's your existing bank or a new lender, often the presence of an adviser can help make sure banks are giving you their best offer.
Fixed Rates Expiring
If your fixed rate terms are coming up for expiry this is a great time to review your options. We can align with your refix date usually from around 60 days out which is very helpful in a market where rates are rising. In a falling interest rate market we can work closer to your expiry to make sure you're getting the most recent and lowest rates available. ​​​
Breaking Fixed Rates
You may be on a fixed rate higher than what is available in the market currently or foresee a trend that means getting a new rate now will benefit you. In this case you may need to break out of a fixed rate term. Your existing lender will likely charge you a fee to do this which may reduce some of the value if you were to refix with the same lender. If you were to move to another lender then there may be some extra incentives to make this a smarter, more cost effective move over. An offset for these costs is a 'cash contribution'.
Benefits of using a Mortgage Adviser
We work with banks every day and know what they should be offering you. Banks will often be able to provide rates below their advertised rates but that doesn't mean they will offer you this directly. Working with a broker can help you get the best rates available because banks understand that we are looking at other options on your behalf so there are more likely to offer their best deal so you chose them over the competition. You can do this yourself but it would mean approaching each bank individually and doing all the negotiating yourself, or you can use an adviser to do all this leg work for you and at no cost.
Cash Contribution
A Cash Contribution is a payment that banks make as an incentive to shift your lending over. Originally these payments were used to pay off solicitor fees but in recent years they have been raised much higher and become a tool for banks to compete with each other. This is great for you and means that switching banks can provide a significant cash incentive.
Moving to a new Lender
Banks want your lending and with multiple providers in the market, these banks need to compete with each other. If your existing bank hasn't offered you anything in a few years then it could be worth exploring your options for a new lender. This is an incentive payment so it doesn't incur interest and there are no requirement as to what it should be used for. When it is paid into your account you can treat it as your own savings but be aware of the cash clawback terms.
Claw Back Terms
You may be wondering, what's the catch? The cash offer from the banks perspective can be seen as an investment that will pay off over time through the interest they charge you. So banks will set claw back terms which ensure that you stay with the bank for long enough for their cost of the cash contribution to be recouped, or they will charge some of this back. Often this timeframe is either 3 or 4 years. Banks have different policies around this, usually scaling down after each year or some will scale on a monthly basis. ​
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Check with an adviser for the different claw back periods to see which policy aligns with your future plans.
Maximum vs Minimum
There is a minimum amount of lending required for a bank to offer a cash contribution. As with most policies this can vary by bank but is, typically around $200,000. The cash offer is based on a percentage of the loan amount, so the incentive will scale up with how much lending you have to refinance. There is also a maximum limit to cash contribution amounts which also varies by lender but is usually around $20,000. Although, by asking the right questions and depending on your position, there may be more capacity above this. This maximum cash offer is subject to review depending on the market so it is worth checking with an adviser to see what you may be eligible for.
Loan Structure
While you are moving lenders for a better deal, it is a great time to review your structure and future goals. If this is your first bank switch since purchasing your home, then you may be ready for a change in structure that will help you get ahead. You're likely a bit more confident in managing your loan and the market may changed which presents an opportunity to do things better. We want you to grow wealth and reduce how much interest you pay so we can run through some strategies to help with this. Here are a couple of common ones to start thinking about your options.
Revolving Credit
This is a type of loan that doesn't suit for everyone. It can be tricky to get your head around for a start but you can think about it similar to a credit card. If used well this can help you to avoid interest charges but retain flexibility. A revolving credit can be used in different ways and we like to break it up into 3 styles; easy, medium, expert.
The easy way is if you have savings in your account, then you can match these savings to a revolving credit amount to repay that portion but still have flexibility to access it.
The medium version provides flexibility to make extra repayments at your own discretion but again, still keeping the flexibility to drop back or access the extra funds.
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The expert version is a bit more hands on and means operating out of the revolving credit as your main salary account and using a credit card in conjunction with this as your expense account. The goal of this is to maximise the amount of money you have in your revolving credit account which reduces interest cost.
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Give one of our advisers a call if you want to run through this further and see if it might help you save money on interest. An offset loan is a similar theory with a few different quirks to it that may suit you better.
Repayment Review
If you're dropping down in an interest rate, we can review your repayments to see if you have capacity to make extra repayments. Most banks have a threshold above the minimum repayment for you to make higher repayments without penalty. Bank policy varies and there can be some advantages of switching banks to a more flexible option. There's a few clever things you can do, if you know what to look for.
Investment Property Structuring
While doing a refinance, it can be a great time to see if you have capacity for a refinance. We can check your eligibility and discuss whether it is something you would like to look at now or put a plan in place to work towards.
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If you already have an existing investment property we can review your strategy to see if you are getting the most out of your loan. A mortgage adviser's scope is mortgages but we can discuss options with you and your accountant or work through with one of our cunning accountant partners.
Multiple Lenders
When you have more than 1 property, including large investment portfolio's then it may make sense to operate out of multiple banks. Just as you diversify your investments, it may be worthwhile diversifying your lenders. There are potential benefits we can run through with you relevant to your situation, but it may not suit everyone. Some prefer the convenience of everything being with a single lender but it is still worth considering your options and the potential benefits of a different structure.
Costs
So now you know there can be massive benefits to shifting the lenders, but there are some costs to consider. To make the refinance worthwhile, the benefits need to outweigh the costs to shift across. Below we will explore the main costs you may face and how we can keep these reduced.
Fixed Rate Break Fees
This is a cost lenders charge to exit a fixed rates. Refinance dates can be aligned with your expiry date in order to avoid any potential fees but depending on the market, it may be worth breaking out of these fixed rates to better align with projected changes or go onto a lower rate sooner. It can be difficult to work out what these costs are and they change day by day. The general idea behind how this cost is calculated is what your interest rate is compared to what rates are currently available and how long your remaining term is. If your rate is lower than what is available in the market, then the bank can make more interest on that same amount of lending so there may not be any break fees. You can ask your existing lender what your break fee is as of today to get an idea of what it may cost.
Cash Claw backs
If your lender has provided you with a cash offer in the last 3 or 4 years, you may still be within their claw back terms. This means some or all of this original claw offer will need to be repaid and the percentage required to pay back will be based on how long ago the cash offer was made. An adviser can help you figure out what this claw back cost may be, or you can ask your existing lender.
Solicitor Fees
Shifting lender means updating who the mortgage holder on legal documents. This process requires a solicitor and the cost is largely based on how many properties are being changed. You can use your own solicitor or if you want a recommendation we partner with both affordable and boutique solicitors to match your requirements.
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Together we can review all the costs and see if both the financial and non-financial benefits in switching over outweigh these.