Refinance Your Loan
Sun Herald
Sunday February 23, 1997
* I HAVE an outstanding mortgage of $130,000 at a fixed 9.45pc. Should I refinance? A K, Bondi Junction
GIVEN that I believe we are seeing the low point of interest rates, this is a good time to consider refinancing.
Costs you need to watch for are the adjustment or penalty fee for cashing in a fixed rate mortgage at a time when rates have fallen, and application fee for a new mortgage.
Different banks have different penalty fees for cashing in the same fixed rate mortgage. Application fees also vary.
The most common approach now is for a bank to have a single fee of around $500 to 600 but some still have numerous fees - such as application, valuation and legal. Stamp duty on mortgages has not been applicable on refinancing in NSW since July last year.
Assuming you are charged a fee of around $2,500 to cash in your mortgage and $500 to enter a new one, you need to be able to save at least $3,000 by refinancing. If, for example, you switch to a two-year fixed rate at 7.75pc, the savings of 1.7pc amount to $2,210 a year and it would take you about 16 months to break even. If instead you opted for the Commonwealth's Basic Variable rate of 6.95pc, the savings would be 2.5pc pa or $3,250pa and it would take 11 months to break even. I suspect the variable mortgage rate is likely to be higher a year from now so you should eventually be better off taking a fixed-rate mortgage for two to three years.
© 1997 Sun Herald