| refinance, mortgage rates, mortgage calculator, mortgage, loan calculator | 21 Jan 2008 12:00 AM |
| To Refinance or Not to Refinance …That is the question by Vicky Edema | |
There is supposedly a lot of refinancing of home loans going on at the moment mainly prompted by early media reports on the claims by banks that they were some how unaffected by rising interest rates resulting from the credit squeeze in the US.
The banks’ initial claims that they had little if any exposure to the problems in the US resulted in borrowers perceiving them to be a safer bet on interest rates than the non-bank mortgage managers.
As a result many borrowers chose to refinance their existing loans with the major banks. By December the message from the banks was changing…unless there was an improvement in the US situation it was likely that they would need to increase rates over and above any Reserve Bank increase.
In January we learned that a number of Australian banks were in fact exposed to the US crisis – to the tune of almost $1 billion in the case of at risk loans to one entity Countrywide.
As at today all the banks have increased their rates for existing and new business. The increase varies between banks and also loan product e.g. interest rates for business loans have generally increased more than home loans.
So where does this leave borrowers who refinanced in the belief that they were better protected against rate increases if they had their home, investment or business loan with a bank?
The fact is that all of these borrowers will have incurred costs to refinance and unless in a fixed or guaranteed rate loan will have subsequently seen their interest rates increase.
The advertised standard variable rates of all 4 major banks is now 8.67% for new business - compared with the rates on offer from the non-bank sector of on average around 8.25% p.a.
No lending institution is quarantined from events such as have occurred in the US. Before deciding to refinance consider the interest rate environment, costs and consequences of mortgage rate increases because undoubtedly there will be many disappointed borrowers who incurred costs and refinanced recently, believing the banks would hold rates.
The banks’ initial claims that they had little if any exposure to the problems in the US resulted in borrowers perceiving them to be a safer bet on interest rates than the non-bank mortgage managers.
As a result many borrowers chose to refinance their existing loans with the major banks. By December the message from the banks was changing…unless there was an improvement in the US situation it was likely that they would need to increase rates over and above any Reserve Bank increase.
In January we learned that a number of Australian banks were in fact exposed to the US crisis – to the tune of almost $1 billion in the case of at risk loans to one entity Countrywide.
As at today all the banks have increased their rates for existing and new business. The increase varies between banks and also loan product e.g. interest rates for business loans have generally increased more than home loans.
So where does this leave borrowers who refinanced in the belief that they were better protected against rate increases if they had their home, investment or business loan with a bank?
The fact is that all of these borrowers will have incurred costs to refinance and unless in a fixed or guaranteed rate loan will have subsequently seen their interest rates increase.
The advertised standard variable rates of all 4 major banks is now 8.67% for new business - compared with the rates on offer from the non-bank sector of on average around 8.25% p.a.
No lending institution is quarantined from events such as have occurred in the US. Before deciding to refinance consider the interest rate environment, costs and consequences of mortgage rate increases because undoubtedly there will be many disappointed borrowers who incurred costs and refinanced recently, believing the banks would hold rates.
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