June 29, 2011
Competition in the mortgage market is heating up and borrowers looking to refinance are set to gain the most as lenders redirect their push away from first time borrowers.
The refinancing market is one of the few areas of home lending that has seen growth in the past year, according to Australian Bureau of Statistics data. There was a 17 percent increase in the number of refinanced home loans in April 2011 compared to the previous year (original figures), in an otherwise subdued mortgage market.
There were 2,093 more borrowers who refinanced in April this year, compared to last year when the mortgage market was at decade-low levels.
A sign of things to come
Cashing in on this trend, NAB-backed UBank launched the UHome Loan specifically for refinancers with one of the best variable rates on the market at 6.59 percent. The UHome Loan was to be available until the end of the financial year, but UBank withdrew the product in mid-June due to overwhelming demand, which may be a sign that borrowers are increasingly open to refinancing.
Damian Smith, chief executive of RateCity, says more lenders are likely to follow suit.
“UBank set a benchmark for the best home loan rates in Australia by reducing the waiting time to receive their 0.20 percent loyalty discount from three years to immediately from taking out their UHome Loan.
“The home loan was only available to refinancing borrowers wanting to switch from another lender and it cleverly targeted this market where all the activity is currently at compared to last year.
“It will be interesting to see how the home loans market changes in the coming months and we’ll be watching it closely as we expect competition to heat up,” he says.
Get in on the action
It’s good news for borrowers that are considering refinancing, and you’ll benefit further from first calculating the cost of switching.
Familiarise yourself with the terms and conditions of your current home loan contract, particularly the section about exit penalties also known as a deferred establishment fee. There are also lender’s mortgage insurance costs to consider, which you may have to pay again.
The good news is that these fees are likely to be quickly recouped, such as within a few months, if you switch to a cheaper mortgage and you’ll end up saving significantly more over the life of the loan.
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