Refinancing

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The Commonwealth Bank of Australia (CBA) has announced it is once more taking in new investor refinancing.
It had put the brakes on investor lending last February.
The bank will now accept new refinance applications for investment home loans with principle and interest repayments.
“As Australia’s largest lender, Commonwealth Bank is committed to meeting our customers’ needs as well as ensuring we continue to meet our regulatory requirements. 
“We continuously review and monitor our loan portfolio across all segments, including investor home lending,” a CBA spokesperson told Australian Broker.
“These changes follow APRA’s announcement in March for banks to reduce the number of interest only home loans, and are aimed at encouraging customers to select principal and interest, where appropriate, to help them own their home faster.”
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CommBank reopens property investor refinancing

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In this fast-changing mortgage environment, it can be hard for investors know whether to wait things out or alter their home loan now before conditions further evolve.
Many investors regularly refinance and restructure so they can unlock equity and maximise their tax position – but do old strategies still apply in this new environment?
Things became serious on 31 March, when APRA responded to the “heightened risks” in the mortgage market by tightening lending criteria.
These latest measures – which followed a first round of tightening that began in December 2014 – were “aimed at improving the quality of new mortgage lending generally and moderating the growth of investor lending in particular”.
As a result, it has become harder for investors to qualify for mortgages – particularly interest-only loans, and even more so interest-only loans with an <a href="https://www.ratecity.com.au/home-loans/lmi-calculator">LVR</a> above 90 percent.
Even before APRA’s announcement, lenders had been making life harder for investors by increasing rates and serviceability requirements.
This column won’t hand out financial advice – only a broker or planner or accountant can do that, but if anyone does want to refinance, they have now been given a opportunity that has never been seen before in Australia.
RateCity has created the <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article1&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">Switch &amp; Save Sale</a> to allow borrowers to access market-leading rates while refinancing.
Borrowers who are with ANZ, Commonwealth Bank, NAB or Westpac could actually save up to $39,000 over 15 years by switching through the <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article1&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">Switch &amp; Save Sale</a>.
RateCity arrived at that figure after calculating how much borrowers would save if they switched from an average-sized mortgage from the average discounted variable rate offered by one of the big four banks to the lowest variable rate in the <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article1&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">Switch &amp; Save Sale</a>.
It’s impossible to say how APRA might act in the future – but the regulator made it clear back on 31 March that further changes might be on the cards.
“APRA will continue to observe conditions in the residential mortgage lending market, and may adjust the above measures, or implement additional ones, should circumstances warrant it,” it said in a <a href="https://www.apra.gov.au/MediaReleases/Pages/17_11.aspx" target="_blank">media release</a>.
As far as investors are concerned, the fast-changing mortgage environment might have some more surprises in store. 
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Is now the time to refinance your investment property? RateCity

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There are a lot of reasons why Australians don’t refinance their home loans.
Some borrowers worry that switching lenders will take too much time, or require too much effort. Many home owners also feel that the benefits of switching lenders won’t ultimately outweigh the costs involved when refinancing.
Let’s take a closer look at the cost of switching lenders, and how to determine whether refinancing a home loan will ultimately be worth it.
How much does it cost to refinance?
The costs you may encounter when refinancing can vary, depending on the lenders involved and your financial situation. These costs can include:
<ul>
<li>Discharge fees (average: $250) – when you end your current loan, you may have to pay a discharge fee to cover the lender’s admin costs. Discharge fees are different from exit fees, which were banned in July 2011, though if your home loan started before this date, they may still apply.</li>
</ul>
<ul>
<li>Upfront costs (average: $400) – these include establishment fees, valuation fees and settlement costs.</li>
</ul>
<ul>
<li>Break fees - if your current home loan is on a fixed rate, you could be charged expensive fees if you exit the loan early. These fees are often based on how much variable rates have dropped.</li>
</ul>
<ul>
<li>Lender’s title insurance for fast track refinance ($500-$3000) – only charged if you opt for an accelerated refinance, this keeps the lender covered in case of problems during the fast-track process.</li>
</ul>
<ul>
<li>Lender’s mortgage insurance or LMI (varies depending on circumstances) – only required if you’re unable to fulfil the new lender’s minimum loan-to-valuation ratio (LVR) requirements, usually 80 per cent. For example, for a $600,000 loan, you’d usually need to provide a minimum $120,000 security deposit to avoid paying LMI.</li>
</ul>
Keep in mind that you may not always need to pay every switching cost when you refinance. Some lenders may be willing to negotiate some of their fees and charges, or even waive them altogether to attract your business.
Breaking even
Once you know how much refinancing a home loan is likely to cost you in fees, charges and other expenses, it’s time to consider how long it will take before the savings from your new loan will make up for these costs.
Using RateCity’s home loan calculator, you can estimate the minimum repayments required by your new lender. By comparing these repayments to your old ones, you’ll know how much you could save on your mortgage each month, and from there how long it will take for these savings to cover your switching expenses. 
For example, if your current mortgage is $600,000 on a 5 per cent interest rate with 20 years of repayments left, your current monthly repayment would be $3960. If you refinance onto a 3.64 per cent interest rate, you could reduce your monthly repayment to $3520 – a saving of $437 per month.
Assuming a switching cost of $1000 (a discharge fee of $300, application fee of $600 and settlement fee of $100), it would take you approximately 65 days to break even.
Also, if you could afford to keep paying the original monthly repayment of $3960, you would pay off more of your loan’s principal each month, ultimately reducing your loan term to 16.9 years. This would in turn reduce the amount of interest you’d have to pay, resulting in an average monthly saving of $688. This would allow you to break even on your switching costs in as little as 45 days.
When you consider that it’s possible to save an average of $39,000 on an average Australian home loan simply by refinancing with the <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article5&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">RateCity Switch &amp; Save Sale</a>, the REAL cost of refinancing could come from not switching lenders soon enough!
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The real cost of refinancing: RateCity

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Don’t make the mistake of setting your mortgage and forgetting about it for the next 25 years – because it could cost you dearly.
One obvious <a href="https://www.ratecity.com.au/home-loans/refinancing-home-loans?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article4&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">benefit of refinancing</a> is that it gives you the chance to switch to a cheaper rate. Don’t forget, home loans are always changing, so even if you got the cheapest rate when you took out your mortgage, there’s a good chance that’s no longer the case.
Another benefit of refinancing is that it could allow you to access more flexible repayment terms, unlock equity to fund an investment property and consolidate a range of debts. 
RateCity has made it easy to change lenders with its <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article4&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">Switch &amp; Save Sale</a>. Here are the top five reasons to take part:
1. Change to a cheaper home loan
Refinancing into a cheaper mortgage makes obvious sense. However, sometimes people don’t realise how much money they could save.
Imagine you had an interest rate of 4.25 per cent on a $400,000 mortgage that you were repaying at the rate of $2,500 per month. If you switched to a rate of 4.00 per cent and left your monthly repayments unchanged, your loan term would be reduced from 19 years and nine months to 19 years and two months. That would allow you to eliminate seven months of repayments, for a $17,500 saving.
2. Change to a better home loan
Another advantage of refinancing is that it can allow you to move to switch to a more flexible mortgage.
That could allow you to access new features such as an offset account, a redraw facility, the ability to make extra repayments or even the ability to take a repayment holiday. You could also move to a fixed rate or move to a variable rate or move to a loan that is half and half.
3. Unlock equity to fund an investment property
In certain circumstances, refinancing your home will allow you to access extra funds that you could then use as a deposit on an investment property.
To unlock extra equity, you need to get a new valuation on your home when you refinance, and that new valuation needs to be higher than the old one.
Imagine you originally borrowed $400,000 to purchase a $500,000 property – that would have given you a loan-to-valuation (LVR) ratio of 80 per cent. Now imagine you’ve since reduced your mortgage to $370,000 while the value of your home has risen to $550,000 – that would give you a new LVR of 67 per cent.
If your new lender allows you to increase your LVR to 80 per cent, you could increase your mortgage from $370,000 to $440,000. That extra $70,000 could then be used as a deposit on an investment property.
4. Unlock equity to fund other expenses
Of course, there are other ways you could spend that hypothetical $70,000 mentioned above. You could use it to fund value-adding renovations. You could use it to replace your old car. Or you could put it into an offset account and spend it several years in the future.
5. Consolidate debt
Imagine you were currently paying off a $370,000 mortgage at 4.25 percent, a $25,000 personal loan at 9.75 percent and a $15,000 credit card debt at 16.50 percent.
A new lender might allow you to refinance those three debts into a single $410,000 mortgage. Even if your new home loan was still priced at 4.25 percent, this sort of consolidation would not only make your life simpler, it would also allow you to repay the personal loan and credit card at a much cheaper rate. 
Refinancing made easy
RateCity is simplifying the refinancing process with its <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article4&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">Switch &amp; Save Sale</a>, which will give borrowers access to market-leading rates.
Borrowers who are with ANZ, Commonwealth Bank, NAB or Westpac could save up to $39,000 over 15 years by switching through the <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article4&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">Switch &amp; Save Sale</a>.
RateCity arrived at that figure after calculating how much borrowers would save if they switched from an average-sized mortgage from the average discounted variable rate offered by one of the big four banks to the lowest variable rate in the <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article4&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">Switch &amp; Save Sale</a>.
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5 reasons you must refinance your home loan: RateCity

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Limiting yourself to the big four banks is like deciding to holiday only in your home town – you might have good experiences but you’ll miss out on so, so much.
That is not to criticise ANZ, Commonwealth Bank, NAB and Westpac, which are good banks. But they represent just a fraction of the offerings in the mortgage market. 
Statistics show the big four’s dominance: they provided 82.6 percent of all the mortgages that were sold in March, the most recent month for which statistics are available.
However, there are three good reasons why you should follow the lead of the 17.4 percent and use a non-major lender. 
1. They have cheaper rates 
Imagine you wanted to borrow $500,000 to purchase a $625,000 property. According to a recent search on <a href="https://www.ratecity.com.au/home-loans?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article4&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">RateCity</a>, non-major banks had 28 of the 30 cheapest advertised rates for owner-occupiers and 25 of the 30 cheapest rates for investors.
That’s not to say borrowers should never use the big four banks – there will definitely be occasions when one of their products is the best option. And that’s not to say borrowers should always take the lowest rate – there will definitely be occasions when a higher-rate product actually represents better value.
However, if a non-major lender has a loan that’s appropriate to the borrower’s circumstances and is also cheaper, the borrower could save tens of thousands of dollars over the life of the loan.
2. They give better service
Australians get better service from smaller lenders, according to the Roy Morgan Consumer Banking Satisfaction Report for the six months to March. The non-major banks achieved an average customer satisfaction rating of 86.1 percent, compared to 80.0 percent for the big four. The customer-owned mutual banks led the way with a rating of 91.0 percent.
There are two reasons why smaller lenders offer better service. First, they know they have no chance of beating the big boys unless they try harder. Second, they’re not massive, bureaucratic organisations, which means they can move faster and be more personalised.
3. They’re safe
Australia’s smaller banks are regulated by the Australian Prudential Regulation Authority (APRA), while non-bank lenders are regulated by the Australian Securities and Investments Commission (ASIC). Those regulators work together to safeguard Australia’s financial system and ensure lenders follow responsible lending rules. 
The other point worth mentioning is that it is the lender, not the borrower, that assumes the risk. If the hypothetical borrower mentioned above took out a $500,000 mortgage and the lender then collapsed, it would be the lender, not the borrower, that would be in trouble.
Nobody can unilaterally alter the terms of a legal mortgage contract, so the borrower’s mortgage would remain unchanged. The only difference is that the borrower would make their repayments to a different party – either a new lender (if the distressed lender found a buyer) or the liquidator (if it didn’t). So, even if the smaller lender went under, your home loan will be safe. 
Thinking of switching?
If you’re curious about refinancing with a non-major lender, RateCity has made the process easier with its <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article3&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">Switch &amp; Save Sale</a>, which will help you refinance to a cheaper rate.
If you have a mortgage with ANZ, Commonwealth Bank, NAB or Westpac, you could save up to $39,000 over 15 years by refinancing during the <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article3&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">Switch &amp; Save Sale</a>.
RateCity arrived at that figure after calculating how much borrowers would save if they switched from an average-sized mortgage from the average discounted variable rate offered by one of the big four banks to the lowest variable rate in the <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article3&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">Switch &amp; Save Sale</a>.
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3 reasons to switch to a non-major lender: RateCity

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If you’re living in a market where property prices have been surging, refinancing could allow you to reduce your gearing level while giving you access to more money.
How? Well, imagine that back in 2014 you borrowed $500,000 to purchase a $600,000 property. Now imagine that your mortgage debt had since fallen to $475,000 while your property’s value had grown to $650,000.
In that case, your equity would’ve risen from $100,000 to $175,000, while your loan-to-valuation ratio (LVR) would’ve fallen from 83 percent to 73 percent. 
If you were to get an updated valuation on your property during the refinancing process, the new lender might respond to your improved financial position by extending you more credit.
In our hypothetical example, the new lender might allow you to stretch your LVR from 73 percent to 80 percent, and therefore allow you to increase your mortgage from $475,000 to $520,000.
Suddenly, you’ve got an extra $45,000 to play with! You could use that money to pay for home renovations, a new car or a holiday. Or you could put it straight into your offset account and potentially access it several years in the future.
Property prices are growing at double-digit rates in four of Australia’s eight capital cities, according to the latest data from CoreLogic.
Sydney’s median price jumped 18.9 percent in the 12 months to 31 March 2017, while Melbourne’s climbed 15.9 percent, Canberra’s 12.8 percent and Hobart’s 10.2 percent. 
Even if you live in one of the other four capital cities, it’s possible that prices in your suburb are recording significant growth or that your suburb’s median price has risen significantly since you purchased your property.
If you want to reduce your debt ratio and unlock equity in your home, you need to refinance.
RateCity is making the process easier with its <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article2&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">Switch &amp; Save Sale</a>, which will allow borrowers to access market-leading rates for their refinance.
Borrowers who are with ANZ, Commonwealth Bank, NAB or Westpac could actually save up to $39,000 over 15 years by switching through the <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article2&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">Switch &amp; Save Sale</a>.
RateCity arrived at that figure after calculating how much borrowers would save if they switched from an average-sized mortgage from the average discounted variable rate offered by one of the big four banks to the lowest variable rate in the <a href="https://www.ratecity.com.au/sale?utm_source=propertyobserver&amp;utm_medium=referral&amp;utm_campaign=rcsale_propertyobserver_article2&amp;rmatt=tsid:1030695%7Ccid:54369%7Ccgid:543693734136%7Ccrid:15969009" target="_blank">Switch &amp; Save Sale</a>. 
RateCity then factored in the discharge fees, application fees and ongoing fees to work out the savings over a 15-year loan term.
Some people think of a mortgage as a one-time event – you take out the loan and then stick with it until the bitter end. 
However, smart borrowers regularly refinance, because they know it not only gives them a chance to reduce their repayments, but also lower their LVR and increase their equity.
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The property boom could be the best thing to happen to your mortgage: RateCity

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Non-majors have increased their share of the Australian home loan refinancing market in the three months to August, with ING leading the charge while CBA lost share, according to the latest AFG Competition Index.
Reserve Bank of Australia’s decision in August to drop the official cash rate saw a flurry of activity by lenders, with most choosing to pass on a cut to their own rates, but the level of discount was varied. 
Non-majors have been the biggest beneficiaries, increased their share of the refinancing market to 36% from 31% in the previous quarter. 
Lenders also typically passed on a greater interest rate cut to owner-occupiers than to investors and many delayed passing on their rate cuts for several weeks after they were initially announced. 
AFG general manager of Sales and Operations, Mark Hewitt, explained the shift. “ING are the big winner, lifting their share from 3.1% to 7.8%. CBA has taken a back seat dropping their share of the refinancing market from 20.2% to 14.6%,” he said. 
“In terms of overall mortgage sales, ING are at a 12 month high on 5.2% of the non- major market. This is at the expense of Suncorp, who are now sitting at 1.8% after a peak of 7.6% of the non-major market back in March of this year. 
Competition between the majors for the investor market saw a number of changes to market share across the quarter. CBA pulled back to close the quarter at 19%, but still tops the list with ANZ jumping to second place with 15.7% and Westpac showing a steady lift of their share of the investor market across the quarter to now be sitting at 15.2%.
“Westpac also cemented their position as the lender of choice for First Home Buyers. They now fund nearly 24% of all First Home Buyer loans.” 
The traditional jostling for position that occurs across the market as a whole was again evident in the results for the majors. 
“Across all mortgage types ANZ and Westpac both regained market share to close out the quarter at 16.9% and 13.8% respectively. At the same time CBA pulled back from pricing discounts to drop their share to 17.5%,” said Hewitt.
Record low interest rates have also seen fixed rate products in hot demand this year. 
“ANZ has doubled their share of the fixed rate pie since April, with their total share of this market now sitting at 24%,” said Hewitt. “In the same period CBA has seen their share of the fixed rate market shrink by 67%.”
“For the non-majors chasing those looking to fix their interest rate, ING was again a winner doubling their share of that segment of the market.”
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Non-majors grow market share of home refinancing: AFG index

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Almost half of Australian home owners have never refinanced their mortgage, according to the results of a new consumer survey by Aussie Home Loans. 
The survey of more than 1,000 mortgage holders showed 45 percent have never refinanced their home loan.
Aussie CEO James Symond said wasn’t surprised by the finding because most mortgage holders are likely not sure about how refinance works, according to a report in the MPA online magazine.
Nearly one third (29 percent) of respondents said they have never refinanced because they think they won’t get a better deal. Almost one in five (18 percent) said haven’t thought about it or don’t know where to start and 17 percent believe it’s too time consuming.
Of the 53 percent of respondents who have refinanced, it happened, on average, more than two and a half years ago. 
“It’s not surprising that home owners don’t know where to start and think refinancing is time consuming, but that’s where a mortgage broker can help," he said.
“Aussie brokers are now doing more refinance home loans than any other type of home loan, and that’s because our customers want an expert who’s on their side to get it done for them.”
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