Repricing v Refinancing: could you save money in a rising rate environment?

Landlords, perhaps it’s time to review your investment loan.

From May until September, property owners on variable-rate loans could have seen interest rate hikes of around 2.5 percentage points, depending on their loan. What does this look like in repayments?

If you had a $500,000 loan with monthly principal and interest repayments over a 30-year term and your interest rate increased from 3% p.a. to 5.5% p.a., your repayments would have increased from $2,108 to $2,839 – an increase of $731. If that loan was $1 million, repayments would have increased from $4,216 to $5,678 – an increase of $1,462.

So, what difference can negotiating a lower interest rate make to your repayments?

Decreasing interest rates from 5.5% p.a. to 5.25% p.a. would reduce monthly repayments by:
$500,000 loan: $78
$1 million loan: $156

Decreasing interest rates from 5.5% p.a. to 5.0% p.a. would reduce monthly repayments by:
$500,000 loan: $155
$1 million loan: $310

When a broker looks to get you onto a better rate, there are a number of ways they can go about it. First, they can look to negotiate with your current lender. Alternatively, they can look at the broader market at over 60 lenders to see if you could be better served elsewhere. This is repricing or refinancing.

Repricing versus refinancing.

When you negotiate with your current lender to get you on a better deal, that is called repricing. This can be a straightforward process and your interest rate or fees change, but the lender remains the same.

If you find a better deal with a different lender and move across, it is called refinancing. Many lenders offer lower interest rates to new customers, and/or cashback incentives where they could offer $2,000 or more for you to move your loan to them. This will need to be weighed up with any potential fees charged in the change, so a broker will run the calculation for you and let you know if it would be beneficial for you over the longer term.

Beyond interest rates.

Another thing to keep in mind is that interest rates aren’t the only way you can look to save money. Lenders also charge fees depending on your deal. A broker can evaluate the current loan you are on and assess whether the features are still serving you.

Ready to find out if you could be saving money?

For a no-obligation chat reach out to Finance Broker, Mark Mollenhauer from Loan Market on 0413 003 622 or email mark.mollenhauer@loanmarket.com.au

Article provided by Loan Market ABN 89 105 230 019 | Australian Credit Licence 390222 The information provided above is on the understanding that it is for illustrative and discussion purposes only. Whilst all care and attention is taken in its preparation any party seeking to rely on its content or otherwise should make their own enquiries and research to ensure its relevance to your specific personal and business requirements and circumstances. Terms, conditions, fees and charges may apply. Normal lending criteria apply. Rates are subject to change. Approved applicants only.