At the end of a fixed rate period for a loan, you have the choice to refix at whatever interest rate the Lender offers. This can be negotiated with your Financial Adviser. If you do not refix your loan it will automatically go on to the Floating Rate. You can then choose to refix it at any time.
Refixing a loan. This is a great opportunity to review your situation, pay down debt and restructure your loans to provide you with more certainty of your cashflow for the future.
While interest rates have been low and the rates have been going down the strategy has been to fix for short periods of time to make the most of the flexibility of not being locked in for a longer term. Now with interest rates beginning to go up and looking to be heading upwards for the next 2-4 years, getting certainty of your cashflow becomes a key factor. Refixing your loan for a longer term is a good idea to ensure you know how much you will be paying on a regular basis.
When doesn’t fixing for a longer term make sense? If you are intending to sell or if you think you may come into some money, fixing your loans for the long term may mean that you have early repayment fees to consider if you need to break the loan to pay the debt off. So, in this situation long term refixing may not be a good idea.
Refixing a loan used to be an easy thing to do – that was before the banks began to implement their new systems to work within the CCCFA rule changes. It used to be that if you were working with us (or any Financial Adviser) we just needed to have a conversation with you about how you wanted to structure your loan, and then we could send the instructions to the bank. One simple email from you to confirm our conversation and the instructions. Easy peasy. Now if you split your loans or make any changes to the loan structure (even if it is the same loan amount) the banks are asking for an updated statement of position and may even ask for some additional bank statements. They may also be doing credit checks. This is all to comply with the Responsible Lending Code as set out in the CCCFA.
All very interesting. All this additional work may put you off doing what used to be a simple restructure – but doing the restructure could save you $1000’s of dollars of interest and speed up the repayment of your debt. I did this with a client in August and when we were looking at her situation this week the restructure has already taken 3 months off the time to repay her debt. The new structure has only been in place for 5 weeks!!
Let us know if you want us to review your loans and see what we can do to help you. We love saving you money!