To Refinance or Refix?

To refinance or refix – that is the question!

It is no secret that the Official Cash Rate has been rising rapidly over the last 12 months. Currently, fixed rates for a one-year term are between 6.5 and 7.2%, and those with a loan-to-value ratio of 80% or less are able to access better offers. Several of the major banks have reported in their most recent economic forecasts that mortgage rates may start to decline around the start of 2024. However, most agree that those coming to the end of a favourable finance term are likely to be in for a bit of short-term pain, given the increased interest rates and falling house prices. 

Approximately 50% of mortgages will be coming off a fixed rate term during 2023. Most of these mortgage holders will be moving from a low to 3% interest rate to one between 6 and 7%.

If you are one of the 50% required to negotiate a new mortgage interest rate in the coming year, then we suggest you speak to your mortgage adviser as soon as possible. 

A good mortgage adviser will have a large network of lenders they can work with. This will enable you to get the best possible terms and mortgage interest rates. Whether with your current mortgage provider or a new lender, they should also help you balance the pros and cons of refixing versus refinancing. 

Refixing

Refixing your loan means that you stay with the same lender and make an agreement not to change the loan for a period of time. In return, the bank will offer you its best “floating” rate, or you will negotiate a fixed interest rate, repayments, and fixed-rate term. 

Refinancing

Refinancing is very different. Essentially, you end the agreement between your current lender and look for a new lender to provide you with the funds to repay your debt and release the mortgage against the title of your property. In return, the new lender will potentially provide you with a new loan agreement subject to a security interest (the mortgage) registered against your title. In other words, you are swapping lenders on the basis of a new agreement (if one can be negotiated) between the parties. 

If you have come to the end of the fixed term and there are options in the marketplace which will allow you to obtain a cashback proposal and better loan terms, then they are, of course, worth exploring. There are a couple of reservations that you should discuss with your mortgage adviser before committing to switching your loan provider. For instance:

1.    The value of your property may have dropped over the last year. You will need to check to see where the loan-to-value ratio is currently sitting.

2.    You will be required to incur legal fees if you choose to refinance your property. 

3.    The process can be convoluted, and essentially you will be making a new loan application to your preferred lender – and the loan application may not be accepted.

Brett Davies from Mortgage Labs says it isn’t always suitable to refinance with a lot to consider, such as still being in a cashback clawback agreement with a current bank and possible break costs along with conveyancing fees. Currently, banks seem to be elbowing for business, and there are a number of deals such as 1% cashback and discounted fixed rates to attract new business. These are all great, but we need to establish viability and ensure refinancing isn’t going to cost more than staying with a current bank. In almost all cases, I would approach a current bank to give them the opportunity to offer retention cash. This can sometimes be suitable to staying put, but is only judged on a case-by-case basis, so may not always be offered. It may depend on when cash was last given.

The increase in test rates can cause affordability issues to refinance. We, therefore, need to assess a client's financial position, which we can do quite quickly, and then offer advice on the best options for the client, as we don’t want them just running off to another bank to refinance when there could be financial implications which are not at the time considered. Good quality advice is key to refinancing, based on many factors such as financial position, future plans and goals or viability.

To sum up, when considering a change to your mortgage or its structure, always seek the advice of an experienced mortgage adviser or financial adviser. This could help save money, and they will always offer unbiased advice.

If you do choose to refinance, Turner Hopkins will be here to support you and complete all the required legal work as efficiently as possible to make the refinance as smooth as it practically can be. For all of your property needs, whether you are buying, purchasing or refinancing, please reach out to one of our experts, who will be available to support you through the process.