Could refinancing prove valuable for home owners and investors looking to unlock extra capital this year? According to one financial expert, yes.
As some 800,000 Australians prepare to exit their fixed rate mortgage over the course of 2023, Paul Glossop, chief executive officer at Finni Mortgages, recently revealed how the strategy could be harnessed by borrowers throughout the year.
Following the Reserve Bank of Australia’s (RBA) decision to enact 10 consecutive cash rate increases between May 2022 and March 2023, in which time the cash rate rose from a record low 0.1 per cent to 3.60 per cent, Mr Glossop revealed the nation’s “probably getting to the point where assets are worth at least 10 per cent less than what they [were] worth this time last year.”
As a result, “the cost of holding those assets has increased exponentially compared to where it was this time last year,” leading to many Australians feeling worse off. However, he noted this is the intention of the RBA’s monetary policy.
“We’re going to have less money that’s going to be free and available every single week and month to do what we want with,” he conceded.
More than a year of economic headwinds has meant the cost of holding assets, particularly homes, for many Australians have increased, while the actual asset itself has “obviously decreased quite significantly in value.”
According to CoreLogic, national home values plummeted 5.3 per cent on average in 2022, the largest calendar year decrease since the Global Financial Crisis (GFC), while repayments since the RBA’s first cash rate hike early last year have leapt by over $1,000 for some borrowers.
Speaking on an episode of Property Finance Uncut, Mr Glossop concedes that many of those mortgage holders bracing to roll off their fixed rate over the course of 2023 can almost “guarantee that every single one of those fixed to variable debts is going to be a higher debt than what it was fixed for.”
“So, if you’re thinking that you’re going to roll from a fixed debt to a variable debt and that variable debts are going to be the best absolute debt that the bank’s going to provide you in the entire market, unfortunately, you’re going to be very sorely mistaken,” he said.
Under such circumstances, he believes borrowers should have one eye on hunting a better rate.
“To put it simply, if you are a principal place of resident sub-70 per cent loan-to-value ratio (LVR), sub-60 per cent LVR, and you haven’t got an opportunity to get a 4 per cent rate on that debt, there are definitely lenders out there who are offering in the fours, even if it’s a 12, 24-month introductory rate.”
From his perspective, there is an “enormous amount of money that’s on the table for most people” by refinancing and “looking under the hood.”
For investors, he felt that “not only is there a chance to refinance to a lower rate, but even getting equity out and starting to think about investing with that extra money that’s available.”
Highlighting that the potential to refinance is still there even if a mortgage holder’s loan has already reverted to variable, he stressed the importance of doing a financial health check, stating that “this is the opportunity to actually get in touch with your broker because this is the time to actually sharpen the pencil.
“That’s where a good broker should be having these conversations with you,” he concluded.
Listen to the full conversation here.