Why you should refinance your mortgage

CoreLogic has released its March Housing Market Update report, which contains the below chart showing the sharp fall in mortgage rates over the past year across various owner occupied and investor loan types and terms.

Specifically, the average housing lending rates for new loans declined 70 basis points for owner occupiers, and 70 basis points for investors through the year to January 2021:

Average mortgage lending rates across Australia

Mortgage rates fell sharply in the year to January across every loan type and term.

What should immediately spring to mind is the large gap between existing loans and new loan. The differences are listed below.

Owner Occupier Mortgages:

  • Variable rate: new loans = 2.79%; existing loans = 3.14%; difference = 0.35%.
  • 3-year or less fixed: new loans = 2.10%; existing loans = 2.73%; difference = 0.63%.
  • Greater than 3-years fixed: new loans = 2.00%; existing loans = 2.27%; difference = 0.27%.
  • Interest Only: new loans = 3.25%; existing loans = 3.77%; difference = 0.52%.
  • Principal & Interest: new loans = 2.45%; existing loans = 2.96%; difference = 0.51%.

Investor Mortgages:

  • Variable rate: new loans = 3.08%; existing loans = 3.49%; difference = 0.41%.
  • 3-year or less fixed: new loans = 2.54%; existing loans = 3.11%; difference = 0.57%.
  • Greater than 3-years fixed: new loans = 2.33%; existing loans = 2.64%; difference = 0.31%.
  • Interest Only: new loans = 3.63%; existing loans = 3.03%; difference = 0.60%.
  • Principal & Interest: new loans = 2.80%; existing loans = 3.26%; difference = 0.46%.

As you can see, serious mortgage savings are available if you look to refinance.

For example, a homeowner with a $500,000 mortgage that refinances from a typical existing variable mortgage at 3.14% to another provider at 2.79% could save around $1750 a year on interest repayments. Obviously, if they shop around they could find an even lower rate and achieve bigger savings.

They could also switch from variable to fixed, gaining bigger mortgage savings.

The point is that it pays to shop around for a better deal. Or at least call your lender and see whether they will drop your mortgage rate.

Unconventional Economist

Comments

  1. It would be great if we had 30 year fixed rates like the USA
    This is why US will weather next 5 years better than anywhere when interest rates start their climb higher but rates will climb higher as inflation breaks higher because they will print like CRAZY to get us out of the mess

    Can I please ask, in 2006 CBA had a 15 year fixed rate,,,, it’s a bit long but 10 year p & 1 would be good under 2% if we see… next year

    I know it’s hard to imagine, we are going to see negative bond yields in AUST later this year first half of next year, really from safe haven play in the crisis/ just parking money for safety
    Not sure how negative they will go short end 1 yr and less quite negative I’d say

    Are there 10 year fixed rates ?

    In the crisis they may have to fix a rate near zero

    They did this in UK… in GFC

    Someone told me in London they had some scheme where rates were linked to the BOE cash rate.

    I think people were getting refunds. Getting paid to borrow

    • Ronin8317MEMBER

      30 year fixed rate exists in the US because of Fannie Mae and Freddie Mac. No banks will hold on to them because the risk is simply too great. Variable rate loans actually gives the Central Bank much faster response time when adjusting interest rate.

      • Oh that makes sense re Fannie

        But if FED raises borrowers are protected if rates rise

        I read trump wanted to get rid of Fannie

        Makes sense, he said it’s not the governments business to be in mortgages

        So I’d say Democrats will stay with current structure

    • ” inflation breaks higher because they will print like CRAZY to get us out of the mess”
      The only way it gets us out of this mess is if inflation breaks higher while interest rates remain at record lows to allow the debt to be inflated away.
      If interest rates rise as well it just makes it all worse.

      • Exactly CS
        Do you think these imbeciles will do anything sensible

        The RBA is going to have all these bonds on their balance sheet that are going to collapse in price
        RBA will be in crisis and will need to be bailed out in 3/4 years

        (I know you’ll give me some printing monetisation theory = higher inflation higher interest rates)

        This is now past the point of return

        They should have listened to MB in 2010 and introduced MP

        lowered the AUD

        Restored manufacturing etc

        They chose the easy way out

        Yes there will be a recovery in 2023 around because there will be so much devastation that interest rates won’t rise straight way…..but as you say the boom will be bust again

        Anyone who has run a business knows you can’t run a business like this

        There will be some sort of reset from the crisis but I don’t know what

        You’d have to assume it’ll be another disaster scheme they’ll come up with

        Why aren’t they quietly saying,,,,,,look inflation is starting to break out, we may need to raise interest rates in H2, but gradually…..

        No they’ll push interest rates lower and tell them interest rates will be lower until 2024

        That may get rid of the camp sites in the housing estates

        • “The RBA is going to have all these bonds on their balance sheet that are going to collapse in price
          RBA will be in crisis and will need to be bailed out in 3/4 years”
          “Anyone who has run a business knows you can’t run a business like this”

          This statement shows you have no idea what you are talking about.
          The RBA is not a business. Who do you think is going to bail them out and why?
          They can PRINT as much money as they want or need. Losses mean nothing in that context.
          They can lose ALL THE MONEY and then print it all again and LOSE THAT, and then lose it again. It makes no difference to the RBA, they have an infinite supply of AUD to spend on whatever they want at whatever profit or loss that occurs.

          “monetisation theory = higher inflation higher interest rates”
          interest rates and inflation don’t have to be correlated.
          The RBA can happily lend out money at a loss at negative rates while inflation rips along. When you can print at will losses mean NOTHING.

          • Mike Herman TroutMEMBER

            that sounds sustainable… I’d trust that system with everything I have….

          • Cynical let’s get through the first few things first
            We have rising inflation over next few months into further rising bond yields and increases in home loan interest rates
            We have a major financial crisis in second half this year with a housing crash worse ….. into 22
            Let’s get through these first before we worry about the RBA
            They’ll be too busy getting us out of this mess next year
            Let’s worry about the rest later
            Who knows you may be right re RBA be ok.. either way they’ll be the cause of the next crisis as well as this one

          • “that sounds sustainable… I’d trust that system with everything I have….”
            Feel free to bet against it. History shows those that have haven’t done well. But yes, at some point it will all go very pear shaped.
            That point is many years away, potentially decades.

          • PalimpsestMEMBER

            @bcnich – I understand your view, I really do. I also accept that there will be a reset, crash, or market volatility. The issue is always the timing. The run up is always the most profitable part of the trade, and also the hardest to get out at the right time. If the Dems get to keep Government in the mid-terms then the Fed continues to burn the economy there hot. https://www.macrobusiness.com.au/2021/03/the-making-of-the-mother-of-all-booms/

            Now that doesn’t translate directly to the AU market. We have way more household debt, property valuations that are based on air, and a Government determined to grind down the middle and lower classes while supporting the big end of town, and itching to restart mass immigration – the opposite of US moves. Therefore our readjustment could be more painful. The NZ adjustments to the housing/investment market will be interesting to watch and learn from – how big a change will it produce and how does the wider economy handle a sudden disappearance of paper wealth. We also operate in a climate where the political stability and trust has dropped markedly.

            Nevertheless, always practice caution. Ray Dalio in his “Principles” noted how he came so close to bankruptcy he had to borrow $4k from his father until he could sell the second car. His certainty that the next great depression was coming was his undoing. Even during a crash, it can be worthwhile to be fully invested – although some companies will disappear forever (as I discovered painfully in 1987). The analytical investor tries to maintain a balance. It’s gamblers that bet the bank.

      • The Incomparable Mr Flannery

        At 2.09% and $15 a month, how much do you need in the offset to offset the extra cost about say a ubank 1.75% or with no fees.

        • A good negotiator should be able to do lower than 2.09% with them.

          Though not quite as good as 1.75%

  2. FUDINTHENUDMEMBER

    Good if ya can, but many can’t. I remember seeing a stat somewhere (can’t find it). Something like 80% of mortgage holders had plans to refinance, but only about half of them would be eligle to (income/LVR issues)

  3. Homestar or Ubank

    anyone have good/bad experiences? these guys are seriously undercutting the big 4

  4. alwaysanonMEMBER

    I am on 2.49% variable with ING but with no annual fees, I can pay as much as I want, and with full re-draw. It seems that many of these low fixed rates have fees and such that erode the benefits from what I am on. If I thought rates were going to rise soon I might want to fix for other reasons – but do we think that is imminent?