Article published 19 August 2021
The last year has seen Australians flock to their Mortgage Choice broker to switch to a more competitively priced home loan. In January 2021, $10.1 million worth of home loans nationally were refinanced in just one month1. By June 2021 that figure had soared to $17.4 million2.
So what is refinancing and why is it especially important right now?
How refinancing works
‘Refinancing’ means taking out a new home loan with a different lender to replace your current loan. Sure, it can mean filling out some paperwork just as you did when you applied for your old home loan, but a small effort can reap big rewards.
That’s because plenty of lenders are saving their cheapest rates for new customers3. By sticking with your old home loan you could be paying a costly home loan loyalty tax – money that comes straight out of your pocket and into your lender’s.
How much could you save?
Reserve Bank data shows the average variable rate for established home loans is currently 3.07%4 though you could be paying more. On the flipside, the average rate on new loans is a tiny 2.73%.
To see the potential savings of switching, let’s crunch some numbers. The average home loan being refinanced is worth $458,0005. At the average old rate (remember that’s 3.07%) you could be paying around $2,188 in monthly repayments6. Switch to a new loan with a rate of 2.73% and you can expect to pay $2,108 each month – a saving of $80 every month.
That works out to an extra $960 in your pocket every year! Even better, over the life of the loan, you could pocket over $24,000 in total interest savings7.
Like to know what you can save by refinancing? Head to your local Mortgage Choice broker to know for sure.