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Even with rates rising, I saved $3,600 per year on my home loan

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Home loans:Refinancing FI

Time's nearly up on my (very) low fixed-rate mortgage.

Even before the letter from the bank arrived, I knew I had a problem.

It had been clear for some time – many months before the RBA this week confirmed its fifth consecutive cash rate rise.

The good times were coming to an end for my home loan.

Repayments going up

I'm one of the thousands of first home buyers from the pandemic housing boom.

Just 2 years ago, I split my new home loan into fixed and variable portions. For the fixed part, I locked in an enviable rate of 2.19%.

On the variable part of my loan, I'd recently been tracking interest rate rises via my CommBank account.

My rates had skyrocketed. The variable rate of my loan had crept up from 2.85% in 2021 to 4.6% – an increase of 1.75 percentage points.

The cost of high rates

It's easy to get lost in percentages. Here's what higher loan rates actually mean.

If interest rates hit their predicted peak of 5.85% (based on ABS figures analysed by Finder), it'd translate to a huge $878 extra on a mortgage each month on average, compared to earlier this year when the cash rate was 0.10%.

When the hard copy letter from my lender arrived, it told me my mortgage renewal was up in 6 weeks. After which, it's farewell to the 2.19%.

I had to find a better home loan deal. It was time to act.

Finding a better home loan

Step 1 – I contacted my lender

This was a simple process. I phoned my bank and asked for the best rate it could offer.

I was asked if I'd had any "dissatisfaction" with my mortgage. I hadn't, but I read between the lines of what seemed a scripted question and said "yes".

I then got sent to another department. Later, I learned this was the mortgage retention team.

My fixed-rate fears were soon confirmed: my bank offered a massive 4.99% rate to lock in terms either for 1 or 4 years.

Deciding that 4.99% was too high, I started to look for a low variable rate.

Step 2 – I shopped around for better rates

I jumped online and saw St.George had an advertised rate of 3.79% variable on a basic loan, while HSBC was floating a rate of 3.77%.

If I went through with a refinance with St.George, I could get $4,000 in cashback. So, I called St.George.

I mentioned the most attractive rate I'd seen with HSBC. After our chat, someone from St.George soon called me back, clearly sensing a hot lead.

They agreed to undercut HSBC by 0.03%, offering me 3.74%.

Why the small numbers count

As I write this, I'm leafing through a 12-page home loan application form with St.George.

I still have a couple of weeks until I have to make a final call on my loan.

My options are:

  • Take my 3.74% variable rate offer back to my current lender to see if it'll match it
  • Continue to shop around and see if another lender will go even lower
  • Continue on my application with St.George

As a newbie refinancer, I can understand why some people stall on such an important piece of life admin.

There is a lot of information and paperwork to sift through and the whole process can seem overwhelming and intimidating.

But, as with millions of others, my mortgage eats up my salary more than any other expense. This isn't a "tomorrow problem", in my view.

An immediate saving of $300 per month

What's more, when I calculated my repayments being on a rate of 3.74% instead of 4.60%, over the course of a 30-year loan, I'd be theoretically paying $105,507 less overall.

Disclaimer alert! That's based on a situation where interest rates don't move, but it gives you an idea. My immediate monthly saving would be around $300, or $3,600 per year.

So, I’m going to take action and get started on my refinance application with St.George today.

Name Interest Rate p.a. Comparison Rate p.a. Fees Monthly Payment
Principal & Interest20% min. depositOwner-occupier
Interest Rate
6.39%
Comparison Rate
6.40%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$2,000 cashback
Refinancers borrowing $250,000 or more can get a $2,000 cashback (Other terms, conditions and exclusions apply).
Principal & Interest10% min. depositOwner-occupier
Interest Rate
6.69%
Comparison Rate
6.70%
Fees
Application: $0
Ongoing: $0 p.a.
Monthly Payment
$2,000 cashback
Refinancers borrowing $250,000 or more can get a $2,000 cashback (Other terms, conditions and exclusions apply).
Principal & Interest 2Y Fixed20% min. depositInvestment
Interest Rate
6.59%
Comparison Rate
8.07%
Fees
Application: $0
Ongoing: $395 p.a.
Monthly Payment
$2,000 cashback
Refinancers borrowing $250,000 or more can get a $2,000 cashback (Other terms, conditions and exclusions apply).
Principal & Interest 2Y Fixed20% min. depositOwner-occupier
Interest Rate
6.59%
Comparison Rate
7.64%
Fees
Application: $0
Ongoing: $395 p.a.
Monthly Payment
$2,000 cashback
Refinancers borrowing $250,000 or more can get a $2,000 cashback (Other terms, conditions and exclusions apply).
Principal & Interest 4Y Fixed20% min. depositOwner-occupier
Interest Rate
6.69%
Comparison Rate
7.52%
Fees
Application: $0
Ongoing: $395 p.a.
Monthly Payment
$2,000 cashback
Refinancers borrowing $250,000 or more can get a $2,000 cashback (Other terms, conditions and exclusions apply).
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When I said a refinance wasn't a "tomorrow problem", I fully appreciate that I'm lucky not to be in mortgage stress.

Some people simply won't have the option to refinance. For example, if the value of their property has fallen below their outstanding balance.

To everyone else, I'd say: what are you waiting for?

Find out more about refinancing or compare home loans and look for a better deal.

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