- Not only does refinancing provide owners with a chance to consolidate debt and release equity but, more importantly, it gives those owners the chance to land on cheaper interest rates.
- According to the Reserve Bank of Australia (RBA) the average variable rate on existing loans is 3%, compared to the average rate of new loans, which is 2.63%.
- While fixed rate home loans offer some certainty, homeowners can potentially miss out on savings if their lender chooses to decrease rates down the track.
The year 2021 was a good one for Aussie homeowners. Rising prices throughout Australia saw an increasing number of homeowners try to capitalise on their equity by refinancing their loans.
Refinancing affords homeowners several opportunities. Not only does it provide owners with a chance to consolidate debt and release equity but, more importantly, it gives those owners the chance to land cheaper interest rates.
How to get better rates
Typically, banks offer new customers better rates in order to secure them as long-term customers. Banks take advantage of customer complacency by charging higher rates because they know that once they get a customer through the door, it is less likely for that customer to take the trouble of finding another lender with a cheaper rate.
If you’re smart about how much money you’re paying over the long term, you can take advantage of that. The savings in the long term are quite remarkable.
According to the Reserve Bank of Australia (RBA), the average variable rate on existing loans is 3%, compared to the average rate of new loans, which is 2.63%.
When you do the math on how much that 0.37% difference can save over the long term, the savings are considerable.
For example, if a customer has a AU$500,000 loan, that 0.37% difference comes to $100 per month. Over 25 years, that can potentially subtract AU$25,000 from the loan.
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Super Low Rates
There are rates even lower than 2.63%. According to online home loan rate compiler, Mozo, the lowest mortgage rates for owner occupiers is 1.77% per annum, offered by online lender Reduce Home Loans.
Reduce Home Loans also leads the way for lowest rates for investors at 2.09%.
That being said, customers should be mindful that some lenders offer cheap rates only to increase the rate six months later. So, customers should research to find whether a fixed rate mortgage or a variable rate mortgage is right for them.
What to take into consideration?
The global economy is in an interesting place right now as it seems to be emerging out of the pandemic. Increased inflation has spooked many investors who are anticipating interest rate hikes to help combat the cost of rising inflation.
While fixed rate home loans offer some certainty, homeowners can potentially miss out on savings if their lender chooses to decrease the rates down the track.
Refinancing can make a huge difference in the amount you pay overall, but it’s up to the individual to take the initiative because, Lord knows, the lender won’t do it.
Take the first step by getting on the phone to your lender and finding out the options available for you.