Millions miss out on refinancing savings as rates rise

Refinancing options clients need now

Millions miss out on refinancing savings as rates rise

News

By Mina Martin

Since interest rates began rising in May 2022, nearly a million Australian mortgage holders have switched lenders for relief, yet millions with the big four banks remain with their original lenders, potentially missing out on savings, Canstar reported.

Why many borrowers haven’t refinanced

For some, refinancing isn’t an option – they’re in “mortgage prison” due to low equity or tough approval standards in a high-rate environment. Others may have renegotiated terms with their existing lender instead.

Yet, according to Canstar’s analysis, complacency could be costing thousands.

Borrowers who haven’t refinanced since the rate hikes began could be paying around 7.11% in interest, while the average refinancer’s rate sits at 6.35%.

Savings for those who act now

Research from Canstar showed homeowners could find rates below 6% with 34 lenders offering competitive deals – often reserved for new customers rather than existing ones.

Canstar’s data insights director, Sally Tindall (pictured above), emphasised that switching can bring real savings.

“Almost 1 million loans have been refinanced since the start of the cash rate hikes in May 2022,” Tindall said. “This is an impressive number, but it does beg the question: what about the rest?”

A borrower with a $600,000 mortgage could save almost $12,000 over two years by moving to a lower-rate lender, even when factoring in switching costs.

Rate cuts expected, but don’t wait

The big four banks expect the Reserve Bank (RBA) to cut rates in early 2025, but there’s no guarantee this will happen right away.

“The RBA won’t be moving a muscle in 2024 and there’s no guarantee it’s going to start shifting down a gear at the first meeting in 2025,” Tindall said.

She added that inflation and other economic factors could delay cuts further into the year.

Competitive lenders and options for low-deposit borrowers

Currently, 34 lenders offer variable rates under 6%, and more than half require a 20% deposit or less, though mortgage insurance may apply.

Tindall pointed out that competitive refinancing rates are driving some lenders to reduce their rates, even as the RBA holds steady.

“Last month alone, 17 lenders made cuts to at least one of their variable rates,” she said. “What this tells us is that competitive pressure, which is being driven by customers refinancing, is pushing rates down.”

Refinancing: Worth the effort for long-term savings

For clients who haven’t refinanced since the rate hikes, Tindall recommends a thorough review of their options.

“If you’ve been lugging around a decent-sized debt on an above-average rate, chances are it’s going to be well worth your time,” the Canstar leader said.

Though refinancing requires paperwork and may involve fees, the potential savings could be substantial for borrowers seeking relief from higher rates.

Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.

Related Stories

Keep up with the latest news and events

Join our mailing list, it’s free!