As what has come as a large shock to many, the Reserve Bank of Australia chose to leave the official cash rate on hold on Tuesday at its monthly meeting.
Speculation is rampant that we will in fact see another rate cut in the near future – however it is being suggested that with some consumer confidence already improved slightly from the last quarter of 2011 – the RBA is holding on to see what real and tangible effect, previous rate reductions have caused our economy.
There has also been a lot of speculation as to whether the banks would have passed on the rate cut even if the RBA was to reduce the cash rate. That is a real possibility – there is much talk of increased funding costs and the bank bill swap rate (will be addressing what this is in a later post) and how that really affects the costs of lending.
There has also been a lot of talk in the media about “going down the road and getting a better deal” … while that is an option for everyone… lets take a look at what we have been seeing in our business AND what you need to consider when refinancing…
So what am I seeing in my business?
Enquiry has definitely picked up in the previous 3 months – with people checking to ensure their home or investment loan is still suited to their needs, and competitive. With the new legislation intro ducted in July last year, abolishing deferred exit costs from mortgages, it is definitely more cost effective than ever to switch lenders, to obtain a more competitive interest rate or product.
There are a few things to consider though.
1. The new laws only apply to loans which were settled (came into effect) post 1st July 2011. Some lenders are applying this new legislation to all loans they hold, however this is not the case across the board, AND if your facility was set up pre July 2011. You may still incur some exit costs.
2. The new legislation only prohibits deferred establishment fees and exit costs. It does not ban fees that are reasonable in the process of discharging a mortgage. There is work to be done by the lenders solicitors such as discharging title, attending settlement and closing out a legally binding contract. So we have seen many lenders charge an administration fee of from $150 – $500. So while the larger fees may no longer be able to be charged, you may incur a fee in this range to switch.
3. Because lenders are no longer allowed to charge larger exit costs – they are charging more regular upfront entry costs. We used to see a lot of lenders offer NO application or set up costs.. theses are now more rare. So prepare to have upfront costs to switch to a new lender.
4. You still have to pay all government charges, title transfer fees and title registration costs.
5. Mortgage insurance. If you loan amount is more than 80% of the value of your property – you would have paid mortgage insurance when you set up your loan. You may not have paid it at settlement though, more than likely it was capitalised on top of your mortgage. If your loan amount is still over 80% of the value of your property – if you switch lenders, mortgage insurance WILL be payable again. It is not transferrable. Having to pay this fee again, can wipe out any potential interest savings you would make on the slightly lower interest rate…
So it is well worth doing the sums and speaking with your mortgage broker, to determine the ACTUAL savings you would have on your loan… taking into consideration any outgoing costs, set up costs and government charges, as well as mortgage insurance premiums. They will be able to provide you with the real numbers – so you can make an informed decision.
If you are even considering refinancing, and would like to run the numbers… shoot me an email to firstname.lastname@example.org and I would be happy to chat with you about where you are at, and what potential options you may have.
Have a great day!