68% of recent home loan refinancers saw their interest rate drop upon doing so, according to the latest consumer survey commissioned by Australia’s largest independently-owned mortgage broker.
Of these, almost one quarter (23%) were now saving more than $300 per month while close to nine in every 10 (88%) were saving more than $50 per month.
The Mortgage Choice 2010 Refinancers Survey asked a range of questions to 1,028 Australians who refinanced their home loan in the last 12 months, finding the main motivation was to switch to a ‘cheaper’ loan, for 24% of respondents, followed by the need to consolidate debts, for 11%.
Company spokesperson Kristy Sheppard said, “With a recent spate of rate rises and the possibility of more before 2011, plus a renewed focus on mortgage exit fees, it is no surprise Australians are refinancing to a cheaper mortgage deal and/or one that better suits their current needs and goals.”
“Impressively, over two thirds of respondents locked in a reduced interest rate upon refinancing, thereby lowering their minimum repayment level. Of these, 42% reduced it by one percentage point or more. It is interesting to note the majority of these borrowers were Gen Ys, who were also most likely to switch lender as well as loan.
“It is great to discover 46% of respondents did not pay exit fees when refinancing. However, 22% paid up to $500, 16% between $500 and $1,000, 11% between $1,000 and $5,000, and 5% incurred over $5,000.
“An experienced mortgage professional such as mortgage broker not only guides borrowers through choosing and applying for a home loan, they are explicit about the costs incurred, not just upon signing a loan contract but throughout the loan term and if the borrower chooses to exit.
“With careful planning and a broker’s guidance, the process of refinancing a home loan can be much simpler than many people expect. 86% of our respondents found the process easy.”
The most common motivations respondents gave for refinancing were to:
- 24% - switch to a cheaper loan (combination of lower interest rate and fees/charges)
- 11% - consolidate debts
- 10% - fund a renovation
- 9% - buy an investment property
- 8% - access additional funds for other reasons (eg. holiday, day to day living, etc.)
“We are happy to see so many respondents keen to add value to their property through renovation and others utilising their market knowledge to invest further in their property portfolio. This is good news for the residential market and something I am sure the construction industry will welcome,” said Ms Sheppard.
Motivated to make a decision, 76% spent six months or less researching their options before refinancing, while 21% spent six to 12 months and 4% researched for longer than one year. Of these, 8% took seven years or more to make the decision to refinance, perhaps because they were trying to avoid exit fees.
Despite the quick turnaround for most, exactly half the respondents said it was their first time refinancing this particular loan. For 27% it was their second time, for 15% their third and for 8% their fourth or greater. Western Australian borrowers were the most likely to have refinanced four or more times.
“Whether you are a novice or experienced refinancer, it is important to thoroughly investigate your finance options before committing. This timeframe may vary depending on your individual circumstances and needs, hence visiting a reputable mortgage broker with a wide range of lenders on their panel will probably save you time, confusion and money,” Ms Sheppard said.
When refinancing, 54% of respondents changed loan product and lender, compared to 46% who stayed with their existing lender and simply switched loan product.
“Interestingly, of those who changed loan product and lender, 78% saw their interest rate decrease. In comparison, only 56% of those who stayed with the same lender and changed loan product saw their interest rate decrease. Again, borrowers need to shop around and explore their many options!” said Ms Sheppard.
45% of respondents used a mortgage broker to help them refinance their loan. South Australians were the most likely to do so, with one in two opting for a broker. 61% of those who used a mortgage broker changed loan product and lender, compared to just 26% who did not use a mortgage broker.
Four out of five respondents refinanced their loan with a bank, with 83% of these choosing a major bank. 8% chose a non-bank lender, 6% a credit union, 2% a building society, 2% said ‘other’ and 2% were unsure.
“Notwithstanding who guided them through the process and which lender and loan product they chose, it is pleasing to find 37% said refinancing was a very easy process and 49% said it was relatively easy. Only 10% found it relatively or very difficult, with females more likely than males to say so,” Ms Sheppard said.
While 18% of respondents saw their interest rate remain the same upon refinancing and 14% saw it increase, 68% reduced their rate in the process. Of these, 22% reduced it by 0.25 percentage points or less, 47% by 0.26 to 1 percentage point, 21% by 1.01 to 2 percentage points, 7% by 2.01 to 3 percentage points and 3% slashed it by 3 percentage points or more.
Respondents who managed to reduce their interest rate were making these savings:
- 10% were saving up to $50 per month
- 21% were saving between $51 and $100 per month
- 16% were saving between $101 and $150 per month
- 15% were saving between $151 and $200 per month
- 13% were saving between $201 and $300 per month
- 12% were saving between $301 and $500 per month
- 7% were saving between $500 and $1,000 per month
- 4% were saving between $1,001 or more per month
“We are delighted to see 88% of recent refinancers who lowered their interest rate were saving over $50 per month thanks to the switch. Just over two thirds were saving over $100 and more than one third were saving over $200!” said Ms Sheppard.
“Contributing any extra savings into a loan each month can have a big impact in the long run. Based on a loan of $300,000 at 7% over 30 years, if a borrower rounded the monthly repayments of $1,996 up to $2,050, the loan would be repaid approximately one year and eight months earlier, saving over $25,000 in interest.”
“In good news for borrowers, the survey revealed that almost half of our 1,028 refinancers did not pay exit fees. It is important to note that new laws authorise ASIC to formally investigate any exit fee seen to be ‘unfair’ or ‘unconscionable’,” Ms Sheppard said.
Of those who did incur mortgage exit fees:
- 6% paid from $1 to $100 (3% of all survey respondents)
- 10% paid from $101 to $250 (5% of all survey respondents)
- 25% paid from $251 to $500 (13% of all survey respondents)
- 30% paid from $501 to $1,000 (16% of all survey respondents)
- 20% paid from $1,001 to $5,000 (11% of all survey respondents)
- 10% paid from $5,001 or more (5% of all survey respondents)
“It is interesting to hear that after respondents researched their options, 26% delayed the refinance due to charges they would have incurred by doing so earlier. They weighed up the cost versus benefit of refinancing, which is what any savvy borrower would do before committing to a large financial decision,” said Ms Sheppard.
When refinancing, respondents were most concerned about:
- 22% - the switch and exit fees involved
- 18% - making the wrong decision
- 13% - the time it would take
- 10% - the confusion involved in the whole process
- 8% - the fees they may incur if they made the wrong decision and had to refinance again
- 8% - whether they would find a better suited loan
Despite any concerns, 89% of respondents had no regrets about their decision to refinance.
Of those with regrets, 25% wished they had chosen a similar loan product from a different lender, a further 25% regretted not refinancing sooner, 20% said they should have researched the mortgage market more beforehand, 11% wished they had visited a mortgage broker to investigate a broader range of options and 11% regretted not staying with their existing lender and simply switching loan product.
The greatest regret for males was that they did not refinance sooner, at 32%. In comparison, females were more regretful about not researching the mortgage market enough before making the decision, at 29%.
“The mortgage market is a maze, where even the most experienced borrower ends up disappointed from time to time, so we are happy only 11% of our respondents had regrets. If borrowers take the necessary time needed to understand market opportunities, whether by using a reputable mortgage broker or through lengthy lender-by-lender research, they should feel confident with their mortgage choice,” Ms Sheppard said.
“We are pleased our survey found the majority of recent refinancers did their research, shopped around, saved money, avoided large exit fees, felt the process was relatively easy and had no regrets about their decision.
“Anyone contemplating refinancing should consider visiting their local Mortgage Choice broker for a free home loan health check. It may be that your loan is still the best option, or it is time to move to another lender and/or loan better suited to your current circumstances and needs. It costs you nothing to do your homework but as our respondents have shown, it may save you a significant amount of money in the long run.”
For further information, statistics or to arrange an interview, please contact:
02 8907 0472 or 0407 416 124