Home loan refinance: 94% of mortgage holders could be losing out by failing to switch

Five Reserve Bank rate cuts in the past 14 months have accelerated home loan rate cuts across the board, yet only a fraction of Australian households have taken up the opportunity to refinance their mortgage. 

That’s according to a recent Mozo analysis of lending figures from the Australian Bureau of Statistics and APRA which found that 321,364 mortgage holders - or just 6% - had refinanced their loan in the 12 months to June 2020. 

That means a considerable 4.6 million households didn’t refinance in that period, potentially missing out on thousands of dollars in savings. But according to Mozo Director, Kirsty Lamont, there’s still plenty of opportunity for borrowers to save. 

“In the last six months we’ve seen interest rates fall to record lows, so home loans are essentially on sale, which doesn’t happen very often,” she said.

“This year more than ever, households could benefit from having extra cash in the weekly budget, so now is a great time to review your mortgage and make sure you are getting the best deal possible.” 

While refinancing may be a welcome opportunity for many Australians to save, not every mortgage holder will be in a position to.

Those who have suffered a significant income reduction or job loss in recent months may find it difficult to refinance, given that borrowers will need to meet the same kind of financial checks required of taking out a new loan (essentially what refinancing is).

Seeking a repayment deferral may be an option open to mortgage holders suffering from financial hardship though, as over 800,000 home loans have been deferred since March as a result of COVID-19, according to recent figures from the Australian Banking Association. 

How much could refinancing save you?

In the past 12 months the average variable rate in the Mozo database for owner occupiers has fallen from 3.94% to 3.38% and there have been even larger declines in the fixed rate category.

Of course, these are just average rates. Some of the lowest variable rate offers in our database are currently sitting below 2.40%, while fixed home loans have dropped even lower with a handful of lenders offering rates below 2.00%.

Why does this matter? Well for many homeowners, their home loan rate won’t have kept pace with these declines.  

“It’s safe to say that many mortgage holders are still making repayments at a far higher interest rate than what is currently available. Although customers who are locked into fixed rate offers could face hefty break fees, they need to weigh up the costs of breaking that agreement,” said Lamont.

“One of the biggest benefits of refinancing is paying off your loan faster. The quicker you pay off your mortgage, the less interest you pay overall. Australians who are in a position to do so should really be taking advantage of these record low rates to pay down as much of their principal as possible.”

So just how much could refinancing potentially save you?

The table below shows the potential savings on offer for an owner occupier currently paying the average variable rate of 3.38% on a $400,000 loan with 15 years remaining. The savings and time cut off the loan are based on the borrower refinancing to the lower rate while continuing to make the same repayments. 

It’s not just a reduced rate that borrowers looking to make the switch can potentially look forward to, as a number of lenders have also launched cashback deals in the thousands of dollars for eligible refinancers.

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Ready to check out some of the sharpest deals on offer to refinancers? Check out the offers in the table below, or see how much you could pocket by shifting home loans by taking our switch and save calculator for a spin.