With property value rising should your mortgage rate be falling?
As property values once again chart an upward trajectory, home equity will be increasing for many Australians. But are mortgage holders missing a trick by failing to refinance to the lower rates available for borrowers with greater equity?
It’s no secret that the value of property across the country has been on the rise in recent months. In fact, values are now higher than ever.
The latest data from CoreLogic not only revealed that housing values are now 1.0% higher than they were before the pandemic, they’re 0.7% higher than they were at their previous peak back in October 2017.
As a result, the medium national dwelling value is now sitting at $583,157, while Sydney’s (the country’s most expensive market) medium value is $879,299.
According to Mozo Property Expert, Steve Jovcevski, rock bottom home loan rates and increased positivity are fuelling this fire and encouraging buyers to enter the market.
“When you’ve got many rates in the 2.00% range and even lower like we do at present, that increases the purchasing power of borrowers and, as a result, borrowers respond by paying higher prices. Buyers may also be encouraged by the fact that we’re seemingly on the road to recovery from COVID-19 in Australia,” he says.
“We’ve certainly seen plenty of first home buyers entering the market by taking advantage of these low rates as well as measures like the First Home Loan Deposit Scheme (FHLDS) and the HomeBuilder scheme.
“But if prices keep increasing as they’re expected to, I think it’s likely that we’ll see first home buyer action taper off a little. They may start to be replaced by investors who I expect to return later in the year, especially given that responsible lending laws are being rolled back in March.”
Greater equity, lower rates?
For owners, the recent increases in property values across most markets will no doubt come as welcome news. But there may be a second benefit that many mortgage holders either won’t be aware of, or haven’t yet acted on.
As property values increase so does home equity. Equity, in this instance, is the difference between what a property is worth and the outstanding balance of any mortgage on it.
Why is this beneficial? Well, more equity can be useful for a number of reasons, including getting a lower mortgage rate.
During the home loan application process lenders assess the loan-to-value ratio (LVR) of a borrower in order to determine their risk - so the more equity a borrower has, the lower their LVR will be and the ‘safer’ they’ll be regarded.
Jovcevski explains that some lenders offer more competitive rates for safer borrowers, so increased property values may have pushed some owners into lower LVR tiers which present them with an opportunity to refinance to a better rate.
“First home buyers, for example, who borrowed at 85% or 90% LVR a couple of years ago may now be in a position or in the near future to consider refinancing,” he says. “That’s because the value of their property may have gone up, so they could be under the 80% LVR threshold which allows them to refinance without paying lenders mortgage insurance again.
“Of course, the same applies to more established borrowers as well. There are certainly better rates out there for borrowers with LVRs at 70%, 60% and even 50%, so it's certainly a good time to look around for a better rate if your property value has increased.”
The impact of LVR on your rate
So just how much of a difference does the loan-to-value ratio have on your home loan rate?
As mentioned above, LVR is just one of the factors used by lenders in the mortgage approval process. But as the figures from the Mozo database in the table below demonstrate, the difference between the average rates only available at specific LVR tiers can be sizeable.
LVR | Average variable rate** |
60% | 2.61% |
70% | 2.64% |
80% | 2.80% |
90% | 2.97% |
95% | 3.20% |
According to Mozo Banking Expert, Peter Marshall, this trend towards rewarding ‘safer’ borrowers has actually ramped up in the past year.
“We’ve seen a whole bunch of lenders introduce tiered pricing for their home loans of late. This is another indication that lenders are keen to get more lower risk loans on their books, which is why they’re happy to give customers who fall into that category a better deal.”
Online lender Athena has even introduced an ‘automatic’ discounting process with its AcceleRATES Variable Home Loan which drops borrowers on to a lower interest rate as soon as they hit a new LVR tier.
RELATED: Aussies still prefer houses to apartments, but is that set to change?
Ready to see if you could benefit from a rate drop? Get started by comparing your existing rate to some of the great offers in the table below, or head on over to our home loan comparison hub to view more loans from an even larger range of lenders.
**The average rates are based on loans available at a particular LVR tier, accurate as of 23 February, 2020. Calculation based on an owner occupier making principal and loan repayments on a $400,000 loan over a period of 25 years.
Refinance home loans - last updated February 27, 2021
Smart Booster Home Loan
1 Year Discounted Variable Rate, Owner Occupier, Principal & Interest, <80% LVR
interest rate
comparison rate
Initial monthly repayment
1.99% p.a.variable for 12 months and then 2.48% p.a. variable2.47% p.a.CompareCompareSmart Booster Home Loan
A super low introductory rate home loan with no monthly or ongoing fees. Unlimited free redraws and unlimited additional repayments to help you build your equity and own your home sooner. Multiple loan splits available. (Rates revert after introductory period ends). 20% minimum deposit required.
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- Optional - with 0.10% additional interest
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $50,000
- maximum borrowing amount
- $1,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Smart Booster Home Loan
Basic Home Loan
Fixed, Owner Occupier, Principal & Interest, LVR 70-80%
interest rate
comparison rate
Initial monthly repayment
2.09% p.a.
fixed 2 years2.56% p.a.CompareCompareBasic Home Loan
Get a flexible loan structure with up to six loan accounts with different rate types. Make free extra repayments. Enjoy free redraw facility. No upfront or ongoing fees. Option to earn Qantas points.
- Ongoing fees
- $0.00
- Discharge Fee
- $400.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $150,000
- maximum borrowing amount
- $750,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Basic Home Loan
UHomeLoan
Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment
1.75% p.a.
fixed 3 years2.22% p.a.CompareCompareUHomeLoan
$0 fees and easy application with the Mozo Experts Choice Home Lender Bank of the Year.^ Choose between weekly, fortnightly or monthly repayments. 3 year fixed rates are for new Owner Occupier Principal & Interest loans.
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free up to $20,000 p.a.
- Redraw facility
- no
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $100,000
- maximum borrowing amount
- $2,000,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- $395 Establishment fee waived for fixed rate loans that settle by 31 March 2020. Receive 1.75% 3 year fixed rate when you apply by 29 April 2021 and settle within 90 days.
Read our Mozo Review to learn more about the UHomeLoan
Celebrate Variable Home Loan
<60% LVR, Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment
2.19% p.a. variable2.19% p.a.CompareCompareCelebrate Variable Home Loan
Fast online application with no fees. Free extra repayments and redraw facility. Min 40% deposit. Crowned Best New Home Loan for 2020 by the Mozo Experts.^
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 60.00%
- minimum borrowing amount
- $100,000
- maximum borrowing amount
- $2,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Celebrate Variable Home Loan
Special Fixed Rate Home Loan
Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment
1.99% p.a.
fixed 4 years3.45% p.a.CompareCompareSpecial Fixed Rate Home Loan
Ability to split your loan between fixed and variable. $2,000 cashback offer for investor & owner occupied home loans over $250k with LVR ≤80% when refinancing to Newcastle Permanent. Limited time offer extended, T&Cs apply
- Ongoing fees
- $395.00 yearly
- Discharge Fee
- $0.00
- Extra repayments
- yes - free up to $25,000 p.a.
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $5,000
- maximum borrowing amount
- -
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- $2,000 cashback when you refinance your home loan from another financial institution when you apply by 31 March 2021 and are funded by 31 May 2021, min $250k, LVR
Read our Mozo Review to learn more about the Special Fixed Rate Home Loan
^See information about the Mozo Experts Choice Home Loans Awards
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