Since the onset of the COVID-19 pandemic, the last 24 months have seen a surging property boom across Australia. In the 2020-2021 financial year, average property prices rose by over 16.8%, and by more than 6.7% over the April-June financial quarter in 2021. Source: Australian Bureau of Statistics 2021.
With prices soaring not just in major cities, but in just about every region of Australia, the pandemic has produced an unprecedented market boom due to its coverage of almost every property market, segment and category across the country.
This is great news for refinancers! A big percentage of first home borrowers would have bought their properties above 80% LVR (or in some cases all the way to 95% LVR). In these instances where someone has borrowed above 80% LVR, they would most likely have needed to pay heavy lender’s mortgage insurance (LMI).
LMI generally costs thousands of dollars as an up-front or ongoing premium, and the problem is if borrowers want to refinance at these LVR’s, they would need to pay LMI all over again and potentially negate any of the intended benefit to refinancing. Effectively, high-LVR borrowers can find themselves stuck with a single lender and at the whim of the lender potentially moving rates around at any time.
But here’s the good news; with the boom in property, prices in some suburbs have increased by more than 20% in value – so even though they have borrowed at 90% LVR, these borrowers may now be under the mortgage insurance threshold. This means they can now more freely refinance, and immediately benefit from the great interest rates available in the market.
This is also great news for borrowers who may have bought years ago at 80% LVR. Within the space of a few months, their LVR may have dropped to the crucial 70% LVR and under. This is where many low-priced, non-bank lenders see their best interest rates kick in. There has never been a better time to ‘check your equity’ and see how you can potentially save thousands on your home loan.
Here are some tips:
- Find out how much houses are selling in for within your area. Try to get a more definitive number value; talk to your local agent, get a report from RP data service for a fee or better still, talk to the team here at Homestar and we will run an RP data check free of charge. Once you have a good idea of your equity position, you can start to look at your options.
- Start by shopping around for a loan with the LVR figure in mind. Your lower LVR is a great bargaining tool when talking to lenders. If you are at 70% or under, you are in a prime position for lenders wanting your business and providing market-leading low home loan rates.
- Check your income. Are you looking to change jobs or become self-employed. Before making those big changes, consider what the impact it will be if you want to refinance. Lenders like stability. Sometimes it’s better to refinance before you make any significant new move in your career. It’s all about timing with your career, and so it is with a home loan.
- Review your credit card limits and personal loans. Even if you pay off your credit card every month, the balance still counts against you as a liability when lenders calculate your serviceability and eligibility. Reducing your limits, or finding ways to consolidate personal loans or debts is a great way to increase your borrowing ability.
- Follow the Australian financial regulators. APRA has increased benchmark rates in a move which will reduce borrowing capacity for borrowers, and there may be other future measures employed to curb property price increases. This means now is a great time to refinance your home loan rate – before any further measures that could affect a borrower’s ability to refinance may be put in place.
- Look for a lender who can do Rapid Refinance. ‘Rapid Refinance Lender’ basically refers to any mortgage or home loan lenders who have the ability to refinance a loan weeks earlier than you would normally be able to expect. This allows you to save money sooner by accessing the lower interest rate weeks before you would have otherwise.
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Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.