Why are Aussies rushing to refinance their home loans?
The cash rate remains at a record low 0.10%, but borrowers have to switch to really take advantage of it.
Once again, the Reserve Bank of Australia held the cash rate at its meeting today. The official cash rate remains at the historic low of 0.10%.
Every expert in Finder's RBA cash rate survey was expecting this, and the RBA itself has been clear for some time that the low cash rate will stick around for a while.
The cash rate affects lenders' funding costs. The lower it is, the lower interest rates end up being for borrowers.
This is good news for people with mortgages, but there's a catch. Lenders rarely pass on lower rates to existing customers. They're simply making too much money on a borrower with a higher rate.
Borrowers need to ask their lender for a discount or switch to a better deal. And that's what Australians are doing. In March of this year, according to the latest ABS statistics, 34,272 Australian borrowers refinanced. That's the highest number of refinancers in over a year.
Finder analysis of this data shows that the average refinancer has a loan amount of $442,831. If you had this loan amount with a rate of 3.00% (a good deal not too long ago, but not anymore) and switched to a new lower rate of 2.00%, you'd save quite a lot.
Assuming a 25-year term, your repayments would look like this:
- Monthly repayments at 3.00% = $2,099
- Monthly repayments at 2.00% = $1,876
Switching in this example could save you $223 a month, or $2,676 a year. Of course, this is a simple hypothetical that doesn't take into account loan fees, switching costs, different loan terms or future rate rises. But it shows the immediate benefit of refinancing to a lower rate.
Compare home loan rates from across the market and look for a better deal.