Australian borrowers could save up to $60,000 by refinancing right now
There are very low mortgage rates on offer, but borrowers who don't switch are really missing out.
Here are the two facts every Australian with a home loan needs to know:
- Interest rates are incredibly low right now.
- Your current home loan rate is probably much higher than the market's lowest offers.
The potential savings for the average Australian borrower are significant. Here's a breakdown using some unique Finder data and recent figures from the ABS:
- According to Finder app data, the average user's home loan interest rate is 3.3%.
- The average Australian refinances a $443,858 loan, according to the latest ABS figures.
- Mortgage rates on Finder right now are as low as 2.09% (and you can find even lower rates on the market if you're prepared to look).
This means a lot of borrowers are missing out by not refinancing to a lower-rate loan.
While these figures are averages, they're a decent starting point. All we need to do is assume the loan term and we can calculate the savings. Let's assume people are refinancing with 20 years left on their home loans (most borrowers choose between 25- and 30-year terms but refinancers have been making repayments for several years already).
Refinancing $443,858 from a 3.3% rate to a 2.09% rate over 20 years will potentially save you $63,246.
That works out to a saving of $3,162 a year over 20 years.
Now, of course, this is a hypothetical scenario. Your own savings depend on multiple factors, including the following:
- Your current loan amount, interest rate and years remaining on your loan
- Loan fees and switching costs
- The assumption that the rates in the calculation won't change (but of course, rates always change)
So your own savings might be less than $60,000. But they could also be more if your interest rate is higher or you have a larger loan amount.
You can use our refinance table to work out your potential savings.
If rates are so low, why is my mortgage rate so high?
Lenders have been dropping rates for months now after successive cuts to the official cash rate. But here's the catch: Lenders are under no obligation to pass these cuts on. And while lenders are competing for new borrowers by offering enticing rates, they're counting on existing customers to stay right where they are.
And that's why many people who've had mortgages for a while are missing out. Check your interest rate (it should be on your home loan statements) and check the latest mortgage rates to see if you can get a better deal.
Is there anything else I need to know about refinancing in the current market?
Besides rates being low, borrowers need to consider their current financial situation and decide if refinancing is right for them. You should consider the following:
- It's harder to refinance if you're currently on a fixed rate. Fixed rates come with breaking costs if you refinance during the fixed period.
- It's harder to refinance if you've lost your job recently. The pandemic has hit many Australians hard. And it's also one of the reasons rates are low right now. If your income has reduced recently, then a new lender may not accept your refinance application. Even if you're earning the same salary as before the pandemic, your company might be claiming JobKeeper payments. This could affect your application too.
- Rates may rise. The current low rates may be here for a while but they certainly won't be around forever. Acting now is a wise idea but you should also factor in rate rises when considering your repayments. Be conservative and be prepared if rates rise again.