What You Need to Know About Mortgage Refinancing

The latest Australian Bureau of Statistics figures show the value of refinancing hit a record high in May with $14.88 billion worth of home loans refinanced in that one month alone. This is up 41 percent compared to March 2020, before COVID-19 gripped the nation and is 76 percent higher than two years ago in March 2019, just before the start of the most recent spate of rate cuts. Just like the peak of last year's lockdown, homeowners are closely examining their budgets and looking for ways to save. The big banks have in recent weeks lifted their cheap four- and five-year terms with some economists now factoring in a rate rise as early as late next year. But there are still 189 different home loan rates under two percent. According to Rate City data compiled for 9News, all big four banks still have two-year fixed rates under two percent. Westpac is the only big four bank with a three-year fixed rate of 1.98 percent but this is unlikely to stick around. The lowest rate in Australia is currently 1.67 per cent – fixed for just one year. And while some banks have also begun hiking their three-year fixed rates in recent months, there are still 39 rates under two per cent available. Sean Walsh bought his Sydney home 18 months ago and was paying 3.2 percent interest with one of the big four banks. He's in the process of switching to a fixed rate of 1.8 per cent, not only saving him money each month, but also securing a cash-back payment from his new lender. "It's a good opportunity to take advantage of the low interest rates that are on at the moment," Mr Walsh told 9News. His broker, James Algar from Mortgage Choice, said it pays to switch. "Don't rely on the bank doing the right thing and telling you about the cheaper rates, because it's not something they do. They are in the business to make money," he said. Rate City research director Sally Tindall said people can save thousands by refinancing. The average existing owner-occupier is paying a rate of 2.92 per cent. If the average mortgage holder with a $500,000 loan balance refinanced to a fixed rate of 1.98 per cent they would see their repayments drop by $236 a month and they could save $13,679 over the three-year fixed term. Ms Tindall said there were several reasons refinancing is at an all-time high. "COVID was a wake-up call for people to get their money in the best possible shape and the biggest monthly expense for many families is the mortgage," she said. Over the past year, Rate City has seen big spikes in refinancing. "Rates are at record lows but only for new customers or customers looking to fix," Ms Tindall said. "The RBA data shows the average existing owner occupier is paying a rate of 2.92 per cent, while a new customer taking out a fixed rate loan of three years or less is paying on average 1.98 per cent – that's a difference of 0.94 per cent." Over the past few months, dozens of lenders have increased their three-, four- and five-year home loan rates – including all big four banks – with more fixed rate hikes expected. There's also growing speculation the RBA will hike earlier than 2024, with CBA forecasting the central bank will increase rates late next year. Many people who have thought about fixing but haven't got around to it are likely to be rushing to lock in a low rate now. But fixing isn't for everyone, Ms Tindall warned. "Fixed rates come with all sorts of extra caveats such as caps on extra payments and they typically don't have offset accounts," she said. If you need help with a mortgage, just contact salt finance. Salt Finance is a boutique home loan & car loan specialist helping hard clients to get a better deal, save interest and own their homes sooner. We are located at Mortdale, NSW. Salt Finance is ready, call us now!