Cashback, low rates: Now could be time to refinance your mortgage

If your income and industry haven't been affected by COVID-19, now could be a good time to refinance your mortgage as competitive rates and a number of cashback offers hit the market.

Evalesco mortgage broker and financial adviser Jules Knox says fixed rates are particularly competitive. She says, when refinancing, a lot of clients are keen to fix at least part of their rates particularly for owner-occupied mortgages.

"We are seeing one- to three-year rates typically around 2.19% for owner-occupied home loans with principal and interest repayments," she says.

"The same lender that is currently offering 2.19% for one- to three-year fixed rates was offering 3.59% for one- to three-year fixed 12 months ago, and 3.29% six months ago.

"Some of the lower variable rates (within a package, with offset accounts), are around 2.64% - so the current fixed rates are still quite a bit lower than the low cost variable rates."

Cashback offers and lower rates

A range of cashback deals for mortgage refinancing are on offer from the major lenders. Westpac, St.George and Bank of Melbourne are offering $2000 until July 31 and CBA is offering $2000 cashback until August 3.

Suncorp is offering a base of $2000 with an extra $1000 for essential service workers such as medical staff, teachers, and police until July 10, or for loans in excess of $750,000, cashback of $3000.

Low rates

ING and HSBC have the two sharpest fixed rates in the market right now, says Mortgage Choice CEO Susan Mitchell.

Investment loan rates have also become more competitive during COVID-19.

"There used to be a wider spread between owner occupied and investment rates," Mitchell says.

"The investment rates are still not as low as the owner occupied but they're much lower than they were six months ago."

Some banks are allowing loans to be paid as interest-only for the next 12 months to provide financial relief for customers during the coronavirus-crisis.

"Paying interest-only is better than paying nothing," Mitchell says.

Multiple offset accounts

Another trend which is becoming more important to borrowers is the ability to have more than one offset account on their mortgage.

Evalesco mortgage broker and financial adviser Jules Knox says that her clients are not just looking at refinancing on rates. "Often it's part of their cashflow structure and looking for lenders who offer multiple offset accounts to link to their mortgages," she says.

Knox says she's looking at banks like Macquarie, AMP, Bank West and Suncorp for good rates and offset flexibility.

People have been demanding flexibility to save their offset money into different buckets for different goals, such as kids' schooling, overseas holiday, new car and home renovations.

CBA, Gateway Bank, QUDOS Bank all now offer an unlimited number of offset accounts.

Bank of Melbourne, Bank SA and St George Bank offer up to 99, Suncorp and Macquarie offer up to 10 each, Bankwest offers nine, CUA offers six.

"You have to understand that institutions will charge a higher loan rate for an offset account so you have to make sure it works for you, and have enough deposited in the offset account to make sure the interest rate is working for you, that is, you're getting to pay your loan off faster with the higher rate," Mitchell says.

Data analyst Jane Sharp says she recently refinanced her mortgage as having more than one offset account was important in the way she managed her money.

"It allows me to manage my spending buckets and watch my money grow against my spending goals," she says.

"When it's all in one account I lose visibility of my progress. For example, if it's a transaction account as my offset, my money is constantly fluctuating and I can't manage savings goals easily."

Knox says that for a lot of her clients with home loans and investment loans, it can be good to have separate accounts to manage their cash flow for holidays, annual bills, and emergencies.

"It's important for clients to have more structure for their cash flow and clients often like the discipline of separate accounts for spending and saving and having multiple accounts."

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