Home loan refinancing rose 11% during interest rate hikes

Key points of this story:

• The size (value) of Aussie home loans reduced on average in 2023.
• Meanwhile, the number of refinanced home loans rose by 11% in 2023.
• Housing affordability may have improved generally, based on lower home loan amounts.
• However, home loan comparison is at the heart of reducing home buying costs over the long term.

Australians borrowed $301 billion to fund property purchases in the 2023 calendar year, with the aggregate value of new home loans declining 13% from the previous year, according to research by online property settlement firm PEXA.

For example, the median loan value in NSW dropped to $647,000 and in Victoria the median fell to $497,000. Such drops reflect the impact of interest rate hikes and cost of living pressures, PEXA says. 

However, higher costs also prompted greater activity among existing homeowners – refinancing activity increased 11% as homeowners sought a better deal on their mortgages. A total of 452,025 existing loans were refinanced in 2023, PEXA found.

These numbers were recorded in the company’s latest Mortgage Insights Report which looked at loan activity across the five mainland states of Australia in 2023. 

Some refinance to a better interest rate, others seek affordability 

It’s clear that a phase of interest rate hikes initiated by the Reserve Bank last year encouraged more Aussies to refinance their existing home loans, reaching a total aggregate value of $220bn, according to PEXA.

PEXA’s head of research, Mike Gill said that such rate rises typically spur refinancing activity, prompting homeowners to shop for cheaper mortgage options.

At the same time he noted that a drop in the median home loan value indicated a slight improvement in buyer affordability, with many new buyers setting their sights on borrowing smaller amounts to handle their purchases.

Of course, the ability to keep a lid on the amount you pay for a home upfront greatly depends on which city and suburb you’re looking at. For example, in Sydney the median property price is $1.5m (Corelogic) as of February, and so it can surely be difficult to find ‘affordability’, generally speaking.

With that said, what you pay for your property is ultimately about the cost of your home loan over the long term. While there are several elements of any given home loan that contribute to its total cost, perhaps above all is the interest rate you are charged on your home loan balance. 

Currently, the average variable rate home loan is 6.85% and the average fixed rate home loan is 6.42%, as per the Mozo database, and yet with a little research you could secure a much lower rate and reduce your regular home loan repayments.

Comparing the top home loans on the market is therefore imperative to securing the best possible interest rate. At Mozo, our experts dissect the home loan market to help you with this crucial step – and also award the best ones in our Mozo Experts Choice Awards.