Borrowers in the box seat to refinance in 2015

Last year was a buoyant year for housing. Interest rates did not move and lenders provided some of the cheapest financing deals ever seen in Australia.

Melbourne’s real estate market is fueled by property owners trading up and trading down – and 2015 looks likely to offer new and tempting opportunities to refinance loans.

Advanced economies have seen very low interest rates put in place as part of their central bank policies. These low-rate polices have worked to curtail deflationary conditions brought on by the 2008 global financial crisis.

Expanding credit growth is directly linked to the momentum in housing prices. If official interest rates drop a further 0.25per cent this year, as many economists are predicting, it’s likely there will be a positive impact on house prices, auction competition and lender deals for refinancing.

The Reserve Bank of Australia kept the official cash rate at 2.5 per cent from mid-2013 before a rate cut of 0.25 per cent in February and this rate consistency is encouraging more buyers to shop around for a refinancing deal. Three and five year fixed loan rates have fallen significantly and lenders are competing hard to offer tailored deals, often discounting their advertised variable rates to get new business through their doors.

Prospective buyers who have substantial equity in a home or in investment properties are in a strong position to negotiate a good deal. Financial services comparison website RateCity says banks will discount their advertised rates to retain customers.

Apart from lower rates, lenders offer sweeteners such as the waiving of application fees. Some will even pay borrowers $1000 or so to cover costs associated with leaving an existing lender.

Refinancings account for a growing segment of Australia’s housing finance market but in the United States they’re huge. According to the US Mortgage Bankers Association, refinancings make up 79 percent of all mortgages written.  Many of these loan applications come from so-called “serial refinancers” who constantly search for the lowest possible interest rate.

Similar trends are emerging here with the rapid rise of mortgage brokers skilled in hunting down the best rates and loans. It’s important not to rush into refinancing; borrowers need to seriously think about their long-term plans and level of job security.

It’s crucial to do the sums, too. If the closing costs on an existing loan are $1,000 but your monthly savings will be $100, you will break even in 10 months. Starting the loan term again may also mean paying more interest over the lifetime of your loans.

It’s also a mistake to deal with only one lender. Refinancing through the one bank can limit the options and benefits that competition brings. A buyer should speak with a quality mortgage broker who can offer a helicopter view of the full finance market.