Is it better to refinance now or wait for a cash rate cut first?

It’s easy to shop around for a better rate online – but is it worth making the switch?

---

If you were banking on a Melbourne Cup rate cut, you might feel like now’s the time to cut ties with your bank. But then again, you might feel inclined to wait until rates do come down before switching to another lender.

Deciding whether to refinance now or later depending on the cash rate movements of the RBA is a bit like trying to time a property sale at the peak of the market, says mortgage broker Andrew Rennie from Helping Hand Finance.

“If you’re selling and buying in the same market, it doesn’t matter because it’s comparative,” he says.

The same goes for home loans. If you are refinancing from one variable product to another, as long as both lenders pass on each rate cut that happens, the margin between the products will stay the same.

Timing the property market is hard – as is timing the mortgage market. Picture: NewsWire / Gaye Gerard

---

DECIDING WHETHER TO REFINANCE

Rennie says when deciding whether to refinance, it’s not a matter of “now or later.” Instead, it’s more about what the cost will be and how much you will save by making the switch. He says while many clients who look into refinancing find it isn’t worth the cost because they will only save a small amount each month now that most lenders don’t offer cashbacks, others who are on much higher than average rates could save quite a bit.

MORE: One aircon detail can save Aussies $1k on bill

Home prices to jump 16pc in major new forecast

Canstar director of research Sally Tindall says rather than trying to time the next rate cut, borrowers are better off calculating their “break-even point.”

Canstar director of research Sally Tindall. Picture: Tim Hunter

---

While refinancing often comes with a discharge fee from your old bank as well as government and admin fees plus other upfront fees from your new lender, some lenders are willing to waive their upfront fees, she says.

“Don’t let the idea of fees put you off refinancing without running the numbers for yourself, because if you’ve got a decent sized debt and are on an uncompetitive rate, fees can often pale in comparison to how much you might save from moving to a sharper deal,” she says, giving the example of a borrower on a $600,000 loan with 25 years remaining.

“Canstar research shows that an owner-occupier who hasn’t renegotiated their mortgage in the last few years is on an average variable rate of 6.36 per cent. However, if they switched to a highly competitive rate of 5.25 per cent or below, they could potentially save more than $12,000 in the next two years, even when factoring in $1,150 in switch costs.”

Helping Hand Finance mortgage broker Andrew Rennie.

---

WILL THE RBA CUT RATES SOON?

Tindall doesn’t believe so.

“For borrowers hoping for rate relief from the RBA, it’s time for a reality check,” she says. “The recent wobbles in inflation have pretty much ruled out the possibility of any further cash rate cuts this year and cast a dark cloud over the possibility of rate relief in 2026.”

She says the only way borrowers can get a rate cut in the near future is for them to do it themselves, either by negotiating with their current lender or refinancing.

She says a competitive rate for home loans is 5.25 per cent, with 42 lenders on Canstar’s website offering rates below this mark.

There was plenty to celebrate on Melbourne Cup Day – just not in the way of rate relief. Picture: William West / AFP

---

Those looking to refinance should always consider which lenders and products they are eligible for first and then look at the lowest rate within that offering, says Rennie. It’s also worth trying to get a sharper rate with your current lender first before making the switch, he says.

LOWEST RATES FOR REFINANCERS

Here are Canstar’s five lowest advertised rates for owner-occupier refinancers (at the time of writing) paying P+I, excluding first-homer buyer loans, introductory rates and green loans. Deposit and loan size requirements may apply.

MORE: Major bank ends dream of sub-5pc home loan rates

1 in 3 Aussies planning sad move this Christmas

Home loan pain capital of Australia revealed