Last Friday was the day that property owners across Australia were dreading. The day several banks increased mortgage interest rates for both owner occupiers and investors.
Among those providers who raised rates were big banks CommBank, ANZ and Westpac (NAB already lifted rates earlier in the month on 12 November) and challenger brands like St.George, AMP Bank and Bendigo Bank.
To some the increases might not seem like much. For instance, CommBank’s rate increase will see its standard variable rate lift by 15 basis points to 5.60% for owner occupier home loans but over a 25 year period on a $500,000 loan this will cost a homeowner $26,874 more in interest.
According to our home loan database, these rate increases bring the average big four standard variable rate to a high 5.61%, which is 0.52 basis points higher than the market average of 5.09%.
Thankfully, there’s one word that will help you avoid the big bank rate hikes – refinancing. In the table below we’ve used a loan amount of $500k and put the average big 4 home loan against some of the lowest rate loans in the market to show you how much you could save:
|Provider||Interest rate||Monthly repayments||Interest charged over 25 years|
|Average big 4 bank||5.61%||$3,103||$431,011|
|Mortgage House Discounted Variable Home Loan||3.79%
variable for 12 months and then 3.99%
|$2,582 then $2,635||$289,745|
|Click Loans The Online Home Loan||3.91%||$2,614||$284,320|
|Bank Australia Basic Home Loan||3.98%||$2,634||$290,100|
The table above is a great indicator of the potential savings that could be made by refinancing your home loan. For example, a home owner that switches from the average big 4 loan to Click Loan’s The Online Home Loan would save $489 interest each month and a mega $146,691 in interest over 25 years. We’d say that’s incentive enough to spend a couple of hours making the switch!
Quick refinancing tips
1. Make sure your LVR is over 80%
While refinancing could be a thrifty option if you’ve found your lender lifts rates on you, it’s usually only worth it if you’ve paid off more than 20% of the property’s value or you’ll have to pay for the cost of lenders mortgage insurance again.
2. Look for flexible features
You’ll want to ensure the new loan you switch to offers you the same flexibility, if not more than your current home loan. Some of the features to look out for include an extra repayments and redraw facility or an offset account. You can read up more on the different home loan features here.
3. Check the switching fees
Make sure you check everything from how much the discharge fee is from your current lender through to the upfront costs charged by the new lender like a valuation and application fee. Often new lenders are willing to haggle on these fees or offer cash back incentives to help outweigh these costs. For instance, Newcastle Permanent is currently offering $2,000 cash back with its Variable Home Loan (Premium Plus Package) and you’ll probably be happy to hear its rate is just 3.99%.