Many businesses and homeowners are asking the question, “should I refinance to get a better deal”?
(This is not surprising given the recent rapid rate increases with the prospect of more to come).
According to the Australian Bureau of Statistics, “the value of borrower refinancing of owner-occupier housing loan commitments between lenders rose 9.7 per cent to a new record high of $12.7 billion in June 2022″.
While the ABS statistics relate to owner occupied home loans, increasingly we are also seeing business owners, considering refinancing.
Refinancing options - More than interest rates
It stands to reason that if you reduce the interest rate, you should be able to reduce your cash out flow.
However, when refinancing there are other factors to consider besides the interest rate including:
- Additional costs associated with the refinance (Establishment fees, service fees, discharge, and settlement fees etc)
- Break costs you may need to pay if you have fixed rate facilities
- Cash back offers and their terms
- Whether you will enjoy the same, or additional benefits (flexibility, loan re-draw, offsets etc)
- If you use the lower rate to repay the loan(s) sooner
Loan Refinancing - Additional Considerations
When refinancing, it is important not to just look at one or two facilities in isolation.
For business owners, in particular, other factors to consider include:
- Can you consolidate borrowings to free up cash flow?
- Is there an opportunity to structure your borrowings to accelerate repayments on non-deductible loans?
- By using alternate products (Cashflow Finance, Invoice Finance, or Equipment Finance) could you release your home or other freehold security arrangements for wealth creation?
- Will the proposed structure meet not just your immediate needs but also the longer term?
A silver lining to rising rates
If there is a positive to rising interest rates, it is that Lenders are keen to do business. The level of refinancing is evidence of that!
In fact, recently we have seen some Lenders reduce their rates! Both fixed and variable!
Terms attaching to cashback offers have also been improved.
Know where you stand – negotiate from strength
Rather than contacting a few Lenders or seeking quotes online, the key to a successful outcome is to:
- Know where you stand & what you can afford to repay before approaching the market (you will need to show you can repay your proposed borrowings both at today’s rate and in the event of future rate rises)
- To have tested different options to find the best structure aligned to what you are trying to achieve and your personal circumstances
- Identify the Lenders who are most competitive and best suited to your situation and/or business
At The 500 Group, we have access to more than 50 Lenders.
If you are thinking about refinancing and discussing the options available, don’t hesitate to get in touch.
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