Do I refinance during Interest Rate Hikes ?

Interest Rate Hike – April 2022

It’s often very disconcerting when rates begin to rise at a rapid rate, or so it seems. Right now for the first time in over 24 months the fixed rate is almost 100 points higher than the basic variable at the high and low end. From all accounts it looks like the variable will follow close behind which has caused many home owners to fix for at least 2 – 3 years at around 3%.

However let’s look at this from a numbers perspective over the next 24 months.

Right now an average loan loan size is $500K, so at a fixed term for two years you will pay around 2.99% on average which is $14950 per year in interest alone.

Refinancing to a sharp variable rate right now at 2% means you will save $4950 in your first year if the rate doesn’t rise.

If the variable rises by 20 points you’ve still saved $3950.

If it raises 50 points to 2.5% you have still saved $2450.

Over the years that I have been broking, I understand that there is always a platform on which the lenders need to compete for new business especially in the refinancing space. For the last 24 months it has been predominantly in the fixed rate space. Currently it is in the variable space so although yes, rates are likely to increase, particularly when the reserve rate starts to climb, the place where new business will be sharpest, will be in the basic variable space.

At the moment there are still some cash back options to take advantage of, to shift to a new lender with a sharper variable rate. This will more than take care of the costs to shift.

Keeping your eye on your home loan over a 24month period at a time is an excellent way to capitalise on incremental savings by refinancing to another lender. $1,000 interest savings each year over a 30 year loan will put $30,000 back into your pocket long term, so it’s smart to have a broker with the due dilligence to complete a rate review every 12 months and who can keep you informed about when to shift.

Lenders will not call you every year to decrease your rate, it’s not in the best interest of their shareholders.

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