Refinance Or Renegotiate? How Mortgage Holders Can Save Thousands On Their Home Loans
Refinance Or Renegotiate? How Mortgage Holders Can Save Thousands On Their Home Loans
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Refinance Or Renegotiate? How Mortgage Holders Can Save Thousands On Their Home Loans
New borrowers consistently benefit from lower rates than existing home loan customers, but refinancing or renegotiating can result in significant savings.
Highlights
- Many Australian mortgage holders are paying a ‘loyalty tax’.
- But shopping around can result in big savings.
- Here’s what you need to know about refinancing and renegotiating.
When it comes to home loans, loyalty simply doesn’t pay.
That’s the message mortgage experts have for owner-occupiers in Australia who are facing the prospect of further interest rate hikes in 2023.
The good news is that shopping around for a better deal could save the average mortgage holder more than $2,000 a year, or more than $100,000 over the life of the loan.
Are you paying a ‘loyalty tax’?
Data shows that new borrowers consistently benefit from lower rates than existing home loan customers.
Higher rates paid by existing customers has been termed a “loyalty tax”.
“We know that lenders really do rely on customers not not being aware of the savings they could get, and just continuing on paying their mortgage off at the rate they got when they took out the home loan,” said Angus Gilfillan, CEO of digital mortgage broker Finspo.
“It may sound like a small amount but when you consider that the average Australian mortgage currently stands at $574,000, that equates to a difference of $2,238 per annum that existing homeowners are leaving on the table,” Mr Gilfillan said.
Richard Whitten, the money editor at financial comparison Finder, agreed that loyalty is “really not rewarded by lenders in Australia”.
“You often find that lenders will offer slightly lower and more enticing rates to get in new customers, but they’ll keep their existing customers on an identical loan on a slightly higher rate,” he said.
Refinancing
Shopping around for a better deal on your home loan and switching to a lender that offers a lower rate may be a bit of a hassle, but it can pay off in a big way.
“We’re seeing more Australians refinancing than we ever have before,” Mr Gilfillan said.
“If you look at the November stats, it’s almost $20 billion of home loans refinanced in the month of November ‘22 versus about $10 billion November 2020. It’s almost doubled in two years.”
As many as 77 per cent of mortgage holders may be overpaying by not shopping around, according to financial comparison site Canstar’s December Consumer Pulse Report.
“Most borrowers are paying interest rates well above the relatively low rates being offered to new customers, and the monthly savings are too big to ignore,” Canstar’s Steve Mickenbecker said.
“Borrowers can’t wait until they are unable to pay the bills to refinance into a lower rate loan. By then their desperation will be matched by lender aversion and they may find themselves out of luck with new lenders.”
While refinancing takes a few hours of work, it’s “absolutely worth it because the savings can be so big”, Mr Whitten said.
“It comes down to doing the research and looking at the loans, different lenders, looking at the interest rate, making sure it’s low. The other thing is factoring in fees. Some lenders charge a lot of fees, some charge almost none. And that can make a bit of a difference,” he said.
Comparing the features offered by different home loans is also important.
“The offset account is usually the best feature on a home loan, it’s a savings account that’s attached to your mortgage, and every dollar you save in the offset account, while it’s there, temporarily offsets your loan,” Mr Whitten said.
Renegotiating your mortgate
The benefit of renegotiating with an existing lender is that it’s quicker and easier than refinancing as it avoids the process of applying for a new loan through a different lender.
Borrowers can either renegotiate themselves or use a mortgage broker service to handle the negotiation on their behalf.
“My advice would be to make sure you know your current loan details and your current rate. Be informed around what’s happening in the market, so have a couple of competitor rates and quotes that you can then put to the lender so they know that you are informed and market,” Mr Gilfillan said.
“But the most important thing is to make the call.”
Mortgage holders should review their home loan rate at least once a year, Mr Whitten said.
“Check your rate, check your statement. Then look at the lenders’ website – has your rate gone up versus their best offer, are there better rates elsewhere?” he said
Will interest rates rise further in 2023?
The RBA sets the nation’s official overnight cash rate, a benchmark that has a major impact on mortgage rates offered by lenders.
The official cash rate currently stands at 3.10 per cent, after the RBA raised the rate for the eighth time in as many months at its final meeting of 2022 on 6 December.
The RBA has warned of further interest rate hikes in 2023 if inflation continues to rise.
The central bank “expects to increase interest rates further over the period ahead, but it is not on a pre-set path”, the RBA’s meeting minutes from 6 December revealed.
“Members noted that the size and timing of future interest rate increases would continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market.”
Source: www.sbs.com.au
Author: Isabelle Lane
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