Smart move: The one step 500,000 homeowners have taken (that you should consider too)
Half a million Australians refinanced their home loan in 2020. We explain the ‘why’ behind the stampede to refinance – and how you could benefit.
2020 won’t always be remembered fondly. But when it comes to home loans, it was the year of the better deal.
A string of rate cuts have pushed home loan interest rates to record lows. According to the Australian Banking Association1 lower interest rates saw a record number of Australians switch their loans to pocket a better deal.
In fact, around half a million mortgages were refinanced in 2020. To put this in perspective, in May/June alone, the number of people refinancing outnumbered those taking out loans for the first time.
Why the rush to refinance?
Refinancing could deliver valuable savings from day one.
A recent report on refinancing by consumer watchdog – the ACCC2, noted that “many Australians with older home loans continue to pay significantly higher interest rates than borrowers with newer loans, potentially costing them many thousands of dollars over time.”
As the ACCC’s Rod Sims notes, “If you have an older loan, you might be surprised to know that borrowers with new loans are likely walking into the very same lender you have your loan with and getting significantly lower interest rates.”
Put simply, staying with your current lender could mean paying the ‘loyalty tax’ of a higher rate. Why pay more?
The potential to save over $17,000
The same ACCC study found borrowers with home loans between 3-5 years old, are paying rates typically 0.58% higher than new loans.
The older your loan, the bigger the potential savings.
Borrowers with loans more than 10 years old could pay, on average, interest rates 1.04% above those on new loans.
When the ACCC crunched the numbers, it found a borrower refinancing a $250,000 home loan could save more than $1,400 in interest in the first year alone. Over the remaining loan term, that same borrower could save more than $17,000.
Refinancing guide
Considering refinancing? Our guide explains the reasons, costs and steps involved in refinancing your home loan.
The sweetener of a cashback
Refinancing doesn’t just mean saving on interest and regular repayments. A growing number of lenders are offering cashback deals that could see you pocket thousands when you switch to a new loan.
And remember, refinancing isn’t just about cutting your costs. It could also let you achieve personal goals like:
- Streamlining money matters through debt consolidation
- Accessing home equity to pay for renovations, and
- Using equity to invest in a rental property, pay for education costs or just enjoy a holiday.
Interest rates are at historic lows today – but they won’t always be this low. Hurry in to speak with your Mortgage Choice broker to understand how much you could save by refinancing. We make it easy by doing the legwork for you – all you have to focus on is how you’ll use the extra savings!
