Finance debt

Nearly record numbers of homeowners continue to switch mortgages as variable rates drop

The allure of low interest rates on home loans seems to continue to push Australian homeowners to refinance their mortgages in substantial volumes.

According to the latest external refinancing figures released by the Australian Bureau of Statistics (ABS) last Thursday, $ 16.05 billion in home loans were refinanced from bank to bank during the month of October.

While latest refinancing figure is down from August peak of $ 17.78 billion, it is 33.6% higher than a year ago and remains one of the highest levels never recorded by ABS.

External refinancing (seasonally adjusted). Source: ABS loan indicators, October 2021

According to Mozo Banking Expert, Peter Marshall, while there are likely a number of factors that motivate mortgage holders to refinance, the abundance of competitive home loan rates is likely an important factor.

“It is no coincidence that we have seen high levels of refinancing in this low interest rate environment. For many, especially those who may have been stuck on a product with a higher rate, this time has been a golden opportunity to make the most of the savings that can be made by switching to a lower rate.

Mortgage rate: The configuration of the land

Generally speaking, mortgage rates are close to their lows in years, which is not surprising given that the official cash rate has stood at a record low of 0.10% for over a decade. ‘a year.

Digging deeper, the picture is a bit more complicated though, as fixed rates and variable rates are currently moving in different directions.

On the one hand, mortgage lenders have cut variable rates with a lot of gusto lately, which means that there is an abundance of high rates available to borrowers. As a result of these recent reductions, the average variable rates for homeowners and investors in the Mozo database are currently the lowest since monitoring began in 2015.

Fixed rates for home loans are a different kettle, however. Since the March trough, longer-term fixed rates (4- and 5-year terms) have steadily increased, and we are just starting to see shorter-term fixed rates (1, 2, and 3-year terms) follow suit. not .

However, as our chart of fixed rate averages shows, rates for borrowers looking to lock in are still very low compared to previous years.

How Much Could Refinancing Save You?

This is a brief overview of the current rate situation, but why is it important to refinancers?

As Marshall noted, one of the most likely reasons for the recent surge in refinancing is that existing mortgage holders are seizing the opportunity to move from a higher rate to a lower rate and in doing so , reduce their reimbursements.

To illustrate the amount refinancers could potentially save by downgrading, here’s an overview of the monthly repayment difference on a selection of rates and loan sizes. These numbers are based on a borrower paying off principal and interest over 20 years, but you can calculate yours using our mortgage payment 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 only examples of rates, but there are even lower rates. For example, the lowest floating rate in the Mozo database for homeowners with LVR less than 80% (loan size $ 400,000, P&I repayments) is currently 1.77% pa (comparison rate of 1.86% pa *) with the Super Saver variable loan from online lender Reduce home loans.

Of course, low interest rates are unlikely to last forever.

As we said above, fixed mortgage rates are already on the rise, and the Reserve Bank has made it clear that it intends to start raising the official rate again in the next few years – a decision that would almost certainly have an effect on variable mortgage rates.

RELATED: Several lenders offer $ 3,000 cash back to refinance your home loan

Interested in seeing how much you could save by moving lenders? Get started right away with our handy switch and savings calculator, or take a look at Mozo’s refinance home loan comparison chart to compare a range of offers for yourself.

* CAUTION: This comparison rate only applies to the example (s) given. Different amounts and terms will result in different comparison rates. Costs such as redemption or prepayment charges, and cost savings such as fee waivers, are not included in the comparison rate but can influence the cost of the loan. The comparison rate displayed is that of a guaranteed loan with monthly repayment of principal and interest of $ 150,000 over 25 years.

** The initial monthly repayment figures are only estimates, based on the advertised rate, loan amount and term entered. The rates, fees and charges and therefore the total cost of the loan can vary depending on the amount of your loan, the length of the loan and your credit history. Actual repayments will depend on your personal circumstances and changes in interest rates.

^ See information on the Mozo Experts Choice Home Loan Awards

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