Record low interest rates are pushing Australians to refinance like never before
Switching to a lower rate could save you over $5,000 a year.
Australian home loan rates have never been lower. And these falling rates are driving existing home loan customers to look at their home loans and find a better deal elsewhere.
In the latest home loan data from the Australian Bureau of Statistics (ABS), the number of refinancers rose 30% month on month. That's May 2020 versus April 2020 (the latest data we have).
In dollar terms, the value of refinanced loans rose from $12,021,800,000 in April to $15,192,700,000 in May. That's an increase of 26.4%.
This data tells us that plenty of borrowers are looking for better home loan deals and they are finding them.
In April 2019, the lowest variable rate loan in Finder's database was 3.48%. Today, the lowest rate is 2.19%.
And yet, at the same time, lenders have dropped their fixed rates even further. The lowest owner-occupier 3-year fixed rate has plummeted from 3.74% in April 2019 to 1.99% today.
This means you can get a much cheaper home loan rate now. But if you already have a home loan, you might not be getting the best deal. While many lenders have passed on recent rate cuts, it's quite uneven. Some lenders consistently pass on a 0.25% cut each time. Others pass on less or only offer their best rates to new customers (a sneaky but common practice).
And that's why borrowers are rushing out to refinance.
In many cases, borrowers don't even have to look very far for a better deal. A third of May's home loan switches were internal: borrowers switching loans but staying with the same lender.
It never hurts to check your lender's website to see what rates they're currently offering. Your own lender might have a suitable product with a better rate than your current one.
Here's how much you can save by switching. Let's use April 2019's lowest rate versus today's to see how much you can save.
Interest rate of 3.74%
- Loan amount: $500,000
- Loan term: 30 years
- Monthly repayment: $2,312
Interest rate of 1.99%
- Loan amount: $500,000
- Loan term: 30 years
- Monthly repayment: $1,845
What a difference a year makes. Switching from a 3.74% rate to a 1.99% rate leaves you with repayments that are $467 lower per month. That's $5,604 a year.
Ready to refinance? Here's what you need to do
If you're thinking about refinancing, there are a few things you need to do first. Follow these steps and you'll be on your way to a better deal in no time:
- Check your current interest rate. Find a recent home loan statement and check your interest rate.
- Compare your rate. Look at some of the latest home loan offers and see how your rate stacks up. If there's a big difference, it's time to switch.
- Crunch the numbers. Use a loan repayment calculator to see how much you can save by switching. Don't forget to look at any possible exit costs that come with leaving your current loan. If you're on a fixed rate, the breaking costs might be very high.
- Talk to your current lender. Getting a lower rate on your current loan, or switching to a cheaper loan with the same lender, is easier than finding a new loan and lender. See if you can get a better deal, but make sure your lender knows you're willing to leave if there's a better deal elsewhere.
- Find a new loan. If your current lender can't help, it's time to find a new loan with a lower rate that suits your needs. You also need to consider whether getting a fixed or variable rate is right for you. Currently, fixed rates are very low – even lower than variable rates in some cases. But these products are less flexible, and if rates fall even further, you'll be locked into a less competitive deal (although it's hard to imagine rates getting much lower than 1.99%).
- Apply. You will need to gather all your paperwork (proof of income, bank statements) and submit an application.
- Discharge your old loan. Once your new lender (hopefully) accepts your application, you'll need to notify your old lender and discharge your mortgage.
Switching is easier than you think. For a few hours spent researching and applying, you can save yourself thousands.
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