Time to refinance? Considerations for mortgage holders and businesses

With the cost of living continuing to rise, it can feel increasingly hard to make ends meet in terms of your personal finances, and it can also be challenging either as a salaried employee or running a business in an inflationary environment. One way of combatting inflation is to reduce the escalating cost of borrowing by reviewing your current arrangements.

A new record has been set for refinancing, with more than $19.5 billion of loans changing lenders in late 2022. ⁱ  If you’re feeling like it’s time you reviewed your borrowing arrangements – either from a personal or business perspective, here are a few things to consider.

Tips for mortgage holders

With rates on the rise, it makes sense to shop around for the best deal. That could mean replacing your existing home loan with another loan from either your current lender or a different financial institution.

If you are refinancing with your current lender, the process can be simpler as your lender already has all your information and it can be easier to renegotiate than switch to a different provider. You may also incur lower or fewer fees by sticking with your current lender, but this will vary according to providers and loans. External refinancing is generally a little more complex but gives you the opportunity to compare providers.

Things to consider when comparing providers and loans include:

Interest rates

Seeking out a lower interest rate is usually the first thing on people’s minds when they review loans and providers. But it’s important to weigh up other factors as well.

Timing

Fixed rate and introductory period loans can be lower to start with but generally revert to a standard variable rate after a predetermined period so it can make sense to review your situation before the fixed rate ends.

Loan term and payment frequency

Adjusting your loan term and home loan repayments could potentially save you money over the life of the loan.

Access to more loan features

Features such as an offset facility or splitting your loan may be appealing. Some lenders also offer cashback deals, although it is important to weigh up what the loan offers rather than be swayed by the promise of a cash give away.

Tips for small businesses

For businesses it also might be time to review your borrowing arrangements.

If you have a loan and your financial situation and credit score have improved over the course of your loan repayments, you might also be in a position to take advantage of a  lower rate  and more favourable terms than your current loan.

Some things to consider as a business include:

Consolidating existing debts

If you have multiple debts incurring high interest repayments it can also be beneficial to combine them into one loan at a lower rate.

Changing the loan amount or the term of the loan

It’s common for businesses to refinance to take advantage of the equity built up in their business and that may mean increasing their borrowings. If expenses are increasing or you are seeking greater cashflow you can refinance your loan amount to be repaid over a longer term and decrease your monthly repayments.

Removing a secured asset

If your home or another personal asset is being used as collateral for your loan and your business is now in a position to borrow without it, you may wish to consider switching.

There are also other ways of accessing finance as a business, including having an overdraft or invoice finance where money is loaned against unpaid invoices, that you may wish to explore.

It’s important to evaluate each method of borrowing or accessing finance and review your situation on a regular basis to ensure your arrangements suit your needs and that you are not paying too much in the way of fees and interest. If you are considering changing providers to seek a better deal, make sure you weigh up all the pros and cons of making the switch and the various deals on offer.

i  https://www.theadviser.com.au/broker/43888-all-time-high-november-housing-refinancing-hits-19-5b-abs

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