Refinance or renegotiate? How mortgage borrowers can save thousands on their home loans

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  • Many Australian mortgage holders pay ‘trust tax’.
  • But shopping around can yield big savings.
  • Here’s what you need to know about refinancing and renegotiating.
When it comes to home loans, honesty doesn’t pay.
That’s the message from mortgage experts for owner-occupiers in Australia facing the prospect of another interest rate hike in 2023.
The good news is that shopping for a better rate can save the average mortgage holder more than $2,000 a year, or more than $100,000 a year. life of the loan.

Whether it’s refinancing or refinancing, this is the way to secure the best rate and avoid overpaying on your mortgage.

Are you paying an ‘honesty tax’?

Statistics show that new borrowers benefit from lower rates than existing borrowers.
The higher prices paid by existing customers is called the “loyalty tax”.
“We know that lenders are relying on consumers who are not aware of the savings they have, and just continue to pay their mortgage at the rate they got when they took out the home loan,” said Angus Gilfillan, Chief Digital Officer. mortgage broker Finspo.
“But we know that the savings, if you go up to the rate that new people get, is about 0.5 percent. But if you give (an average) 30 year home loan of $110,000. There’s not much you can do in this day and age to save $110,000. And I would say that either negotiating or refinancing your mortgage is definitely something you should look into, especially if you haven’t done that for a year or more.
Of the from the Reserve Bank of Australia (RBA) shows in November that the average rate for home loans for owner-occupiers is 5.29 per cent. compared to 4.79 percent for new loans.

Statistics show that owner-occupiers with existing loans tend to pay more than new borrowers. Credit: RBA

“It may seem like a small amount but when you consider that the average Australian mortgage is currently at $574,000, that equates to a difference of $2,238 a year that homeowners are leaving on the table ,” said Mr Gilfillan.

Richard Whitten, finance director at financial comparison firm Finder, agreed that honesty is “really underrated by Australian lenders”.
“You will often find that lenders will offer lower and more attractive rates to attract new customers, but they will keep their existing customers on the same loan in a price a little higher,” he said.

“Loyalty does not pay. You have to shop around and find a better deal elsewhere or you contact your lender directly, and say, ‘Hey, I have seen better deals on your own website for the same type of loan, can I get the same thing. fruit?’ They will often charge you to do the work yourself to get a better price. “

Refinancing

Shopping around for a better deal on your home loan and switching to a lower rate lender can be a bit of a hassle, but it can pay off in a way. a lot.
“We’re seeing more Australians reinvesting than ever before,” Mr Gilfillan said.
“If you look at the numbers for November, almost $20 billion in home loans were refinanced in November ’22 and about $10 billion in November 2020. That’s almost doubled in two years.”
As many as 77 per cent of mortgage holders could pay more by not shopping around, according to Canstar’s December Consumer Pulse Report.

Last year, 15 per cent of mortgage holders switched lenders and secured a lower rate, Canstar found, while only 8 per cent of mortgage holders who tried to refinance failed. get a better price.

“Many lenders are paying interest rates that are higher than the low rates offered to new borrowers, and the monthly savings are too big to ignore,” said Steve Mickenbecker of Canstar.
“Borrowers can’t wait until they can’t pay bills to refinance with a low-interest loan. That’s when they will have to deal with their disappointment and frustration with the investors and may find them at a disadvantage to new borrowers.
Although refinancing takes a few hours of work, it is “well worth it because the savings can be huge”, said Mr Whitten.
“It comes down to doing research and looking at loans, different lenders, looking at the interest rate, making sure it’s low.” Another factor is the classification of fees. Some lenders charge a lot of fees, some pay almost no fees. And it can make a big difference,” he said.

It is also important to compare the features offered by different home loans.

“The offset account is usually the best part of a home loan, it’s an account attached to your mortgage, and all the money you put into the offset account, while it’s there, your loan is temporarily spent,” said Mr Whitten.

“So if you are looking at two loans with the same rate, but one has an offset account and one does not, you may think ‘I want the offset account, it is important to I am a flexible bank attached to mine. home loan that lowers my interest rate over time’.”

Renegotiate your mortgage

The benefit of renegotiating with an existing borrower is faster and easier than refinancing because you avoid the process of applying for a new loan. through another loan.
Borrowers can renegotiate themselves or use a mortgage servicer to handle the negotiations for them.
“My advice is to make sure you know your current information and your current cost. Be aware of what is going on in the market, have competitive prices and offers that you can present to the lender so they know you are informed and marketing,” said Mr Gilfillan.
“But the most important thing is to make the call.”
Mortgage holders should review their home loan at least once a year, Mr Whitten said.
“Check your price, check your information. Then look at the lender’s website – has your rate gone up according to their best offer, or are there better rates elsewhere?” he said

“You’d be surprised how often people who’ve had their loan for a few years might be higher than they could get on the same loan,” he said.

Will interest rates rise further in 2023?

The RBA sets the country’s overnight cash flow, a model that has a major impact on the mortgage rates offered by lenders.
The official cash rate currently stands at 3.10 percent, after the RBA raised the rate for the eighth time in as many months at its last 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 “is expected to increase interest rates over the coming period, but not on a planned path”, the RBA’s from the 6th of December it was revealed.
“The members noted that the size and time of the increase in interest rates in the future will continue to be determined through the data coming in and the Board’s evaluation of the outlook for the price of the economy and the labor market.”

The RBA committee will meet again on February 7 to give its decision on whether to hold, cut, or raise the cash rate.

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