Homeowners continue to switch mortgages at a record high as variable rates decline
The lure of low home loan interest rates seems to continue to drive Australian homeowners into substantial mortgage refinancing.
According to the latest external refinancing figures released by the Australian Bureau of Statistics (ABS) last Thursday, home loans worth $ 16.05 billion were refinanced from one bank to another in October.
While the latest refinance numbers are below their August high of $ 17.78 billion, they’re 33.6% higher than a year ago and still one of the highest levels ever recorded by ABS.
External refinancing (seasonally adjusted). Source: ABS Lending Indicators, October 2021
According to Peter Marshall, Mozo Banking Expert, while there are likely a number of factors motivating mortgage holders to refinance, the abundance of competitive mortgage rates is likely an important factor.
âIt is no coincidence that we have seen high refinancing in this low interest rate environment. For many, especially those who may have stuck to a higher priced product, this period was a once in a lifetime opportunity to make the most of the savings that can be made by switching to a lower price. â
Mortgage Rates: The State of the Country
By and large, home loan interest rates are almost as low as they have been in years, which is no surprise given that the official rate has been at a record low of 0.10% for over a year.
The picture is a bit more complicated when drilling down, however, as fixed and floating rates are currently moving in different directions.
On the one hand, mortgage lenders have been cutting floating rates with great vigor recently, which means an abundance of sharp interest rates are available to borrowers. As a result of these recent cuts, the average floating rates for both owner-occupiers and investors in the Mozo database are currently the lowest since the tracking began in 2015.
Fixed mortgage rates are another boiler, however. Longer-term fixed interest rates (4 and 5 year terms) have been rising steadily since the bottom in March, and we are only just beginning to see that shorter fixed interest rates (1, 2 and 3 year terms) are catching up.
However, as our graph on the fixed-rate averages shows, the interest rates for borrowers who want to commit to a lock-in investment are still very low compared to previous years.
How much could you save by refinancing?
This is a brief snapshot of the current interest rate situation, but why is this important for refinancers?
As Marshall noted, one of the most likely reasons for the recent surge in refinancing is that existing mortgage holders are taking the opportunity to move from a higher to a lower rate while lowering their repayments.
To illustrate how much refinancers could potentially save by switching to a lower interest rate, here is the monthly payback difference with a selection of installments and loan sizes. These numbers are based on a borrower making principal and interest repayments over a 20 year period, but you can calculate your own using our mortgage repayment calculator.
|$ 250,000||$ 500,000||$ 750,000|
|2.25%||$ 1,300||$ 2,601||$ 3,901|
|2.75%||$ 1,353||$ 2,706||$ 4,059|
|3.25%||$ 1,407||$ 2,813||$ 4,220|
|3.75%||$ 1,462||$ 2,924||$ 4,385|
These are just sample prices, but there are lower prices available. For example, the lowest floating rate in the Mozo database for owner-occupiers with LVR below 80% ($ 400,000 loan volume, P&I repayments) is currently 1.77% pa (1.86% pa comparison rate *) with the Super Saver Variable Loan from online lenders reduce home loans.
Of course, low interest rates are unlikely to last forever.
As mentioned earlier, home loan fixed rates are already rising, and the Reserve Bank has made it clear its intention to raise the official cash rate again over the next few years – a move that will almost certainly affect the variable home loan rate.
TIED TOGETHER: Several lenders are offering $ 3,000 cashback to refinance your home loan
Want to know how much you can save by moving lenders? Get started right away with our handy exchange and savings calculator, or go to the Mozo Home Refinance Loan Comparison Chart to compare a number of offers yourself.
* ATTENTION: This comparison price is only valid for the given example (s). Different amounts and terms lead to different comparison rates. Costs such as redemption fees or early repayment penalties as well as cost savings such as fee exemptions are not included in the comparison price, but can influence the cost of credit. The benchmark rate shown is for a secured loan with monthly principal and interest payback for $ 150,000 over 25 years.
** The initial monthly repayment numbers are only estimates based on the specified interest rate, the loan amount entered, and the term entered. Prices, fees and charges and thus the total cost of the loan can vary depending on the loan amount, loan term and loan history. The actual repayments will depend on your individual circumstances and changes in interest rates.
^ See Mozo Experts Choice Home Loan Awards information
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