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Interest rate sparks investor refinancing surge

Investors have been actively refinancing their loans following the Reserve Bank of Australia’s (RBA) rate cut, a mortgage broker director noted.

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According to Think Mortgage director, Kapil Virmani, property investors have been refinancing their loans following the latest RBA rate cut, which saw interest rates drop by 25 basis points from 4.35 per cent to 4.10 per cent.

“The rate cut has served as a catalyst for them to conduct a thorough health check of their existing home loans,” Virmani said.

“I’ve seen significant movement in investor clients looking to ensure they are on competitive rates.”

In addition to ensuring they are on competitive rates, Virmani said more investors have been considering refinancing.

“Of course, everyone wants a lower rate, but this is particularly the case with investors who regard their property as a financial asset and are very numbers-driven. Owner-occupiers are more likely to set and forget their home loan,” he said.

Virmani said historical Australian Bureau of Statistics lending data has shown that previous RBA rate-cutting cycles support the link between lower rates and greater investor refinancing.

The last RBA rate-cutting cycle, from June to December 2019, showed that investors’ external refinancing rose by 19.4 per cent, from $9.593 billion in the June quarter to $11.452 billion in the December quarter.

While more rate cuts are forecast throughout the year, Virmani said investors should consider refinancing sooner rather than later.

“The sooner an investor refinances, the sooner they start reducing their repayments and increasing their return on investment,” he said.

“Lenders are already adjusting their rates in line with the RBA’s decision. They also use times like these to attract new borrowers, so those who refinance now can take advantage of this competitive period.”

In total, more than 50 lenders have passed on the rate cut.

The new lowest advertised variable rate is 5.64 per cent from Australian Mutual Bank, Homestar Finance and RACQ.

Out of the big four, ANZ offers the lowest variable rate at 5.84 per cent, followed by CBA at 5.90 per cent, while NAB and Westpac are at 6.19 per cent.

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While investors usually consider refinancing to get lower interest rates, Virmani said the conversations have left some investors with additional portfolio opportunities.

“Many investors are still on loans they took out before the pandemic, they then discover, during the refinancing discussion, that they have more equity than they realised, and therefore have the ability to use that equity to fund the deposit on another investment property.”

“Others discover that they can improve their financial position, including gaining tax benefits, through restructuring their loans,” Virmani concluded.

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