What is the RBA planning for low-interest rates?

The Reserve Bank of Australia has sounded a warning on booming house prices, signalling it will clamp down on risky lending if the market overheats.

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With Australia experiencing historically low interest rates on home loans, buying a home is topping many Aussies spend list, including first home buyers who are combining these cheaper mortgages with Government incentives to buy their first home.

While the last decade saw lenders become very conservative in their lending practices, this move has been somewhat relaxed to counteract the devasting financial impacts of coronavirus on the Australian economy. 

As you would expect, the rush to make the most of these cheaper mortgages has seen demand for properties outstrip supply, and Australia is now seeing a historical rise in house prices, increasing the minimum cost to both get into the property market for the first time or take a step up the ladder.

This has seen many a borrower stretched to their financial limits and borrowing at the top end of their limit.  

On Tuesday, Reserve Bank governor Philip Lowe warned the RBA would clamp down on risky lending if the booming market overheated, though they did not expect to lift the official cash rate until at least 2024.

“Housing markets have strengthened further, with prices rising in most markets. Housing credit growth to owner-occupiers has picked up, with strong demand from first-home buyers,” Mr Lowe said.

“Given the environment of rising housing prices and low-interest rates, the bank will be monitoring trends in housing borrowing carefully, and it is important that lending standards are maintained.”

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What does this mean for low interest rates?

The RBA have rates are set to stay until they see inflation, which hinges on wages growth, which is yet to happen.  

“Wage and price pressures are subdued and are expected to remain so for some years. The economy is operating with considerable spare capacityit will take some time to reduce this spare capacity and for the labour market to be tight enough to generate wage increases,” Mr Lowe said.

He said underlying inflation is expected to remain below 2% over the next few years.

In short, while some lenders may increase their home loan interest rates, the highly competitive market to attract borrowers will more likely keep rates low for the foreseeable future.

Even prudent spenders could benefit from these record low rates, without borrowing more money. Many finance experts have commented this is potentially an ideal time to lock in a low home loan rate and sit securely at a low rate for the next one to five years.

It could also be a good time to consolidate debt under a lower interest fixed-rate loan or refinance to a home loan package with a lower interest rate and potentially pay the loan down quicker by continuing to make the same repayment amounts they currently are.  

The moral of the story seems while it is a good time to explore locking in a fixed rate while they are unlikely to drop significantly lower, conversely, if you are locking in a loan for more than you would usually consider, ensure you’ll be able to service it when interest rates inevitably do arise.

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Are you on the lookout to save more on your home loan? Take advantage of low rates. Contact us for help working out your home loan options.

The Australian Government has just released the final report in the Australian Competition and Consumer Commission’s (ACCC) home loan price inquiry.

The investigation, which commenced in October 2019, with the interim report released in April 2020, addresses the need for Australian mortgage holders to ditch their “set and forget” mentality and opt to refinance in order to get more bang out of their home loan.

The interim report showed that existing borrowers with larger or older home loans are paying significantly higher interest rates than new borrowers, and that headline variable mortgage interest rates do not accurately reflect what customers are actually paying due to discretionary discounts offered by lenders.

Commenting on the report, ACCC Chair Rod Sims said, “if you are someone with an older loan, you might be surprised to know that borrowers with new loans are likely walking into the very same lender you have your loan with and getting significantly lower interest rates.”

The ACCC is urging existing borrowers to switch lenders or negotiate their rate in order to potentially save tens of thousands of dollars in interest over the length of their home loan, despite impediments to the process.

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Impediments to consumers and ACCC recommendations

Although the gains from refinancing can be significant, consumers seeking a better home loan experience barriers at each step of the process, making it less likely for them to start or complete the switch.

“There are factors standing in the way of home loan borrowers switching lenders, such as a lack of clear and transparent pricing, as well as inconvenience and time costs, but for many borrowers switching will be worth the effort,” Mr Sims said.

According to the report, “The proportion of borrowers who stand to benefit from switching significantly exceeds the proportion of borrowers who say they intend to switch.”

Urging borrowers to engage in the home loan market and to become more aware of the benefits of switching, the ACCC recommends that lenders offer less opaque home loan pricing and provide an annual prompt to their borrowers with variable rate loans greater than three years old.

“This information would be a powerful motivation for borrowers to seek a lower rate from their current lender or to switch to a new lender. It would also encourage lenders to offer existing customers better rates, promoting greater competition in the sector,” said Mr Sims.

The report also suggests the government allow the ACCC to “continue to inquire into and monitor competition and pricing in the home loan market.”

The regulatory board recommends two new measures be put in place for banks to make switching to different lenders less painful. These are:

While the federal government considers the recommendations, the Finance Brokers Association of Australia (FBAA) welcomes the change. Managing director of FBAA Peter White said, “We support the ACCC report findings to make banks more proactive with existing borrower interest rates. This ensures banks are more transparent as to what existing borrowers pay.”

The report recognises, however, that without direct regulatory intervention, two of the Big Four banks have reduced their reliance on discretionary discounting in an effort to provide consumers with more price transparency.                                                   

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Introduction and benefit of the Consumer Data Right

The ACCC emphasised that with the Consumer Data Right going live on 1 July 2020, borrowers can now request their bank to share their home loan data with accredited third parties, which should further enable consumers to compare services for a better deal or to switch between lenders more easily. 

CEO of the Mortgage & Finance Association of Australia (MFAA) Mike Felton also said they were pleased with the report’s recommendations.

“Improvements to the discharge process coupled with proposed consumer credit reforms that will place greater emphasis on individual circumstances and borrower information should assist to further reduce impediments to refinancing, result in faster overall turnaround times and improve access to appropriately priced credit,” Mr Felton said.

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Has your lender made the cut? Take advantage of when lenders start dropping their rates, we can help organise your refinancing or a pre-approval!

The Australian economy is showing signs of recovery with nearly half of mortgage holders who opted to defer their loans in March, are resuming regular repayments.

The Australian Banking Associations (ABA) latest data showed an estimated 45% of deferred loans were active again.

Since lenders launched the initiative to combat the economic effects of COVID-19 in March, around 500,000 mortgage holders chose to defer their repayments.

Halfway through the 6-month deferment period, the Australian Prudential Regulation Authority (APRA) revealed an estimated 1 in 10 Australian mortgages were on hold, totalling $195 billion worth of home loans, or 11% of total housing loans. 


1. Lenders optimistic about the decline in deferred loans

The initiative aimed to protect lenders, their customers and the economy, by avoiding the economic impacts of mass loan defaults. 

ABA’S CEO Anna Bligh has lauded the initiative as a success, softening the economic fallout for many Australian mortgage holders.

“These loan deferrals have helped hundreds of thousands of Australian families and small businesses survive the pandemic”, Ms Bligh said.

Ms Bligh also expressed her positivity about the number of mortgage holders recommencing their payments as the deferral period comes to an end. 

“This is a good sign for the economy. It shows that more Australians are getting back on their feet and resuming their loan repayments”, she said. 

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2. Mortgage holders returning to work

The re-uptake of mortgages is a sign that households are recovering from the economic fall-out of COVID-19, with unemployment rates beginning to ease. 

The end of significant lockdowns in June meant a number of Australians returned to work and became more financial stable, with APRA’s latest data revealing that July saw more mortgage holders recommencing their payments than deferring their loans. 

According to the Australia Bureau of Statistics (ABS), unemployment rates declined sharply from May through to August but saw a rise in September.

Speaking to reporters at BlueScope Steel last month, Prime Minister Scott Morrison predicted that unemployment rates should continue to fall as Victoria begins to open up.

“It was falling before the Victorian wave hit us, and with Victoria opening up again we would expect to see that fall again”, he said. 

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3. Forecast for the Australian economy

Although the GDP is forecast to grow strongly in the coming months, Australia’s economy will still be persistently smaller than outlined by pre-COVID forecasts.

In a September speech Treasurer, Josh Frydenberg outlined the long-term effects that COVID-19 would have on the economy. 

 “By the end of 2020-21, Australia’s real economy is expected to be around 6% smaller than forecast in the 2019-20 MYEFO”, he said. 

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4. Additional support beyond the deferral period

The banks have assured support for customers who face continued financial difficulties, including the extension of the deferment period to January 2020. 

Speaking with ABC News, Commonwealth Bank’s Chief Executive Matt Comyn said they were finding tailored solutions to support their customers depending on their financial situation. 

“As we approach the end of the initial deferral periods, we have been contacting all customers with deferred loans to talk with them about their options, including returning to full or part payment, or converting their loans to interest only,” he said.

ABA’s CEO Anna Bligh echoed these sentiments but warned that extended deferrals weren’t automatic, meaning mortgage holders would need to contact their lenders to apply. 

“If you are in financial difficulty, please call your bank, they can help you find a way through. Don’t tough it out on your own” she said. 

She also confirmed that the ABA would not be reporting borrowers to credit agencies until at least March 2021, assuring they had a good repayment record before the deferral period. 

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Is your current interest rate still competitive? Contact one of our mortgage brokers to compare your options and find a deal that suits you. 

The economic impacts of COVID19 on the Australian property market have seen an unprecedented surge in homeowners refinancing their home loans, looking to save on their mortgage repayments. 

The Australian Bureau of Statistic’s latest data on Australian lending showed the number of people who refinanced in May was 50% above normal levels.

Thanks to the current economic climate and record low-interest rates, the competition between lenders to gain new business is fiercer than ever, creating the opportune environment to refinance.

In an interview with Business Insider, Finder insight manager Graham Cook said, “Historically low interest rates and a lack of investor spending are a double whammy to banks, but a boon for mortgage holders.”


Why people are refinancing?

Job losses and an unstable economic outlook are the driving factors behind the large increase in home loan refinancing.

The desire to shrink household budgets is seeing droves of mortgage holders seeking out lower interest rates in order to save money on their monthly home loan repayments.

In an interview with The Sydney Morning Herald, Canstar finance expert Steve Mickenbecker said, “The average variable interest rate is 0.53% lower than a year ago – and you can do far better than that if you shop around”.

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What kind of savings can be made?

Refinancing can allow mortgage holders to enjoy immediate savings from lower interest rates, in addition to reducing the life of the loan with the ability to pay it off faster. 

The decrease in new lending, coupled with a dip in investor activity has forced banks to find creative ways to entice existing and new customers.

ABS lending data reported that nearly two-thirds of refinanced loans were with new lenders, further increasing competition between lenders.

Currently, 22 banks and lenders across Australia are offering cashback incentives as high as $4000 to refinance with their institution.

A number of these incentives are attached to loans with less competitive rates, and buyers are being cautioned not to make a decision strictly based on the upfront reward.

Speaking with news.com.au RateCity research director Sally Tindall said that those looking to refinance should prioritise lower interests rates over immediate perks.

 “A low rate is almost certainly going to beat a one-off perk, usually by tens of thousands of dollars”, she said. 

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The Sydney Morning Herald’s money contributor Nicole Pedersen-McKinnon outlined the savings that could be made by shopping around for a more competitive interest rate.

“If you move a $400,000 home loan from a typical discounted big-four bank interest rate of 3.6% to the cheapest loan with an offset account or 2.3%, you would save $79,677”, she said. 

Ms Pedersen-McKinnon advised that loans should be refinanced over the same period you have remaining on your existing loan, to avoid paying considerably more interest. 

It is recommended that anyone looking to refinance understands all the costs involved before committing to a new loan.

Who is refinancing? Can I do it too?

The latest ABS report revealed that new homeowners are leading the refinancing charge, and are also responsible for the majority of new home loans.

Even with the increase in refinanced loans, only 6% of mortgaged holders made the move in the 2019-2020 financial year.

The data indicates that a potential 4.6 million households could be saving on their mortgage repayments by refinancing their loans.

Of course, not all of these households will be eligible, especially in the current economic climate.

However attractive refinancing may be to mortgage holders, the usual home loan application process still applies. 

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Other things to remember before refinancing

Mortgage holders looking to refinance should calculate potential savings to ensure they are getting the best deal. 

Prior to refinancing it is essential to understand and budget for possible ongoing fees, application fees, exit fees and break costs.

With lenders more competitive than ever to snag new business, this is the best time to shop around and compare products.

Words by Nell Matzen

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Get in touch if you are looking to apply for the scheme or if you’re unsure about your eligibility. Our home loan professionals can help you understand your options if you think a renovation could be in your future. 

What is refinancing?

Refinancing is the process of taking out a new home loan to pay your existing mortgage, and it’s essentially a way for borrowers to leave their current lender and take out a new loan with a competitor institution. Refinancing is generally undertaken with the aim of saving money long-term on loan repayments, by seeking a loan with a shorter loan term or better interest rate, or to consolidate personal debt, credit card debt or other loans into a one mortgage to more easily manage finances.

Here are five reasons why now might be a good time to consider refinancing:


1. To seek out a more competitive rate

With interest rates currently at an all-time low it’s a perfect time to shop around for a better deal on your mortgage rate.

Following a series of cuts from the RBA to the cash rate over the last twelve months, Australian banks are able to offer competitive rates in the current market. While some banks are choosing not to pass the full rate cut on to customers, many are offering historically low interest rates, particularly on fixed-rate loans.

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Rate cuts can make a big difference to the total you pay on your mortgage over the lifetime of the loan. Even as little as a 0.5% interest rate cut on a $400,000 mortgage can save a borrower over $30,000 over a 25-year mortgage.

In a highly competitive market reliable borrowers have some power to negotiate better loan terms for themselves. While having a good credit score and at least 20% equity in your home are good ways to boost your negotiating power, there are a few things you can take into consideration to get a better deal:

2. Because loyalty can cost existing customers

While many borrowers traditionally believe that staying loyal to a bank is the more competitive way to manage their finances, recent research has shown that loyalty to an institution may not count for much.

The Home Loan Price Inquiry interim report released by the Australian Competition and Consumer Commission (ACCC) in March has shown that the big four banks focus on drawing in new customers, often at the expense of their existing customers. The increasingly competitive incentives and lower rates being offered to new customers means loyal borrowers with existing home loans are paying more as these same incentives are not passed on to them. According to the report, customers taking out new owner-occupier home loans were paying an average of 26 basis points less than existing customers.

“… our analysis shows how that even a small further reduction in interest rates could potentially save thousands of dollars over the life of a mortgage. Consumers should consider this carefully when it is time to re-engage with their lender,” said ACCC Chair Rod Sims when discussing the report.

Make it a habit to compare your home loan conditions to the newest offerings from banks once a year to ensure you continue to secure a great deal on your mortgage.

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3. To take advantage of competitive incentives on offer from lenders

In a competitive market, lenders look to entice borrowers to switch to their product or service through promotions and incentives such as cash back deals. This might be a cash offer but can also be in the form of gift cards or pre-paid credit cards, while other promotions include reduced or waived fees, discounts on lenders mortgage insurance, and more. Different banks have different cash-back offers available depending on the size of the loan and loan to value ratio, so those willing to do the research might be in for a decent sum.

It’s important to consider the refinance package over the length of the loan, however, and not simply sign on for a cash back bonus. While a cashback incentive might seem like a great offer, if you’ll end up paying more over the lifetime of the loan in interest or fees, or are sacrificing other loan features, you aren’t actually getting a good deal.

4. Because switching backs got easier through digital mortgage transactions

Thanks to the introduction of open banking in Australia on July 1, switching banks and refinancing loans is aimed to become a smoother process. Open Banking allows major bank customers to share their financial data with ACCC accredited third parties that make loan comparison much more transparent and convenient for borrowers.

This means the details registered by the borrower when applying for their existing account can be accessed when applying for a refinance loan, possibly saving time and fees on application paperwork and fast-tracking applications.

In recent months especially triggered by the effects of coronavirus some lending institutions have also introduced digital measures such as electronic mortgages, distance document witnessing and electronic document signing. The Australian Banking Association (ABA), alongside a coalition of associations, are arguing for these streamlined measures to stay in place, which means refinancing could possibly continue to be a more convenient process.

“Federal and State Governments are to be congratulated for moving swiftly during COVID-19 to use their emergency powers to facilitate these e-transactions, it’s now time to make these changes permanent to make transactions easier, keep the cost lower and reduce the hassle of transactions which rely on ‘in person’ signatures and paper documents,” said ABA CEO Anna Bligh.

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5. Consider searching for flexible home loan features

Lenders offering additional flexible home loan features can be another reason to refinance. This can include flexible repayment options, redraw facilities or multiple offset accounts.

While fixed-rate loans are presenting the more competitive value for borrowers right now, many will want to have the option for flexibility in their home loan structure in the future. Given current lower interest rates, borrowers may also want to consider split loans, allowing them to lock in a great fixed-rate on part of their mortgage while still accessing the flexible features that come with variable rate loans.

Additional ways you could benefit from refinancing

Refinancing could also allow borrowers flexibility to use the existing equity in their homes to borrow additional money to renovate their property. With state and federal government grants currently available for home renovations, refinancing to undertake a value-add renovation could a worthwhile move for property owners.

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Things to consider before refinancing

If you currently have less than 20% equity in your home refinancing might mean having to pay Lender’s Mortgage Insurance (LMI) on your new loan. You’ll want to take this cost into account when considering what you’ll save by refinancing by weighing it against a potential reduced interest rate.

You’ll also want to consider the length of a new loan. If your lender will only refinance your mortgage under a 25 year or more loan term you may up paying more in interest even on a lower interest rate, so always ask for a similar loan length to your current one.

Words by Danielle Austin

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Get in touch if you are looking to apply for the scheme or if you’re unsure about your eligibility. Our home loan professionals can help you understand your options if you think a renovation could be in your future. 

In the past 14 months, the Reserve Bank of Australia (RBA) has made five cash rate cuts which have decreased some home loan interest rates across the board and yet only a fraction of Australian households have taken up the opportunity to refinance their mortgage.


According to the Australian Bureau of Statistics (ABS) and the Australian Prudential Regulation Authority (APRA), the lending indicators data from June 2020 depicted that 321,364 mortgage holders – or 6.2% – had refinanced their loan in the 12 months to June 2020.

The data shows that most Australians, an approximation of 4.6 million households did not refinance in that period and may potentially be missing out on saving thousands of dollars.

Consider revising your rate today, refinancing could help you secure a more competitive interest rate! Contact one of our mortgage brokers to compare your options and find a deal that suits you. 

The ABS data from the lender statistics in May 2020, illustrated a different outcome revealing 33,712 Australians refinanced in May, up 30% from April 2020. This data is conflicting to the 6.2% increase in June 2020.

There is still plenty of opportunity to refinance if you are in the position to do so. In the last six months we have seen interest rates fall to record lows, it’s almost as if home loans are on sale, which does not happen very often.

Refinancing may not be for everyone, 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.

However, customers that are locked into fixed rate offers could face hefty break fees by refinancing which is something they need to weigh up the costs of breaking that agreement.

Related: How you could be mortgage-free in less than ten years

Consolidate your short-term debts into your home loan when you refinance. Our eChoice broker can help organise your refinancing application.

1. How much could you be saving?

According to the Mozo database, in the past 12 months the average variable rate has fallen from 3.94% to 3.38% and there have been increasing declines in the fixed rate category.

When your home loan interest rate is no longer competitive to other lenders, it might be time to switch up. Interest is the single biggest cost on a home loan, so with the fluctuating market currently, the smallest difference in the interest rate can make a significant impact to a borrower’s total repayments over time.

Refinancing your home loan is beneficial for the customer in the long run. Even though the immediate expense of breaking contract fees and new lender fees will be a lump sum amount, the amount you will save over the life of your home loan will offset the initial expense.

Depending on your property value, you may be looking to refinance to access your usable equity for renovations or purchasing an investment property. Contact us today and we’ll find you a competitive mortgage rate.

Broker sitting across from smiling couple and helping them to refinance

Related: Home Refinancing Hits Record Highs

2. Could you pay off your home loan sooner?

Many refinances are conducted to reduce the interest rate on an existing home loan and a lower rate could help you pay off your mortgage sooner due to saving on repayments. Aim to refinance for a shorter period some first-time refinancers may switch their home loan to a longer loan term that could reduce your monthly repayments but increase the amount of interest you pay over the life of the loan.

One of the biggest benefits of refinancing is paying off your loan faster and reducing the amount of repayments. The quicker you pay off your mortgage – the less interest you pay overall, which potentially saves you thousands.

Get in touch to work out what features of your current loan you want to keep and compare the interest rates on similar loans. If you find a more competitive rate elsewhere, ask your current lender to match it or offer you an alternative.

Related: How to pay off your home loan sooner

Words by Ece Demir

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Home loan refinance

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

How can refinancing help you pay off your home loan quicker?

5601.0 – Lending Indicators, Jun 2020

Get better features for yourself, save interest with an offset account, make extra repayments to get ahead and redraw them if you need to. With access to 100s of mortgage products from over 25 lenders, refinancing.com has the resources to get YOU the right home loan deal.

Australia’s house prices have plunged by 2% during the COVID-19 pandemic, reversing more than two years of gains.

Domain has released its House Price Report for the June 2020 quarter, which provides insight on the latest property market movement. This quarter depicted that nationally house prices have dropped 2.0% and unit prices have dropped 2.2% over the last March to June.


The price drop however, is a sign that the government stimulus measures are managing to counter much of the COVID-19 drag.

Currently, unemployment figures continuously rising, and household incomes continue to shrink as the number of people without work increasing from 85,700 to 927,600 people, the report shows a glimmer of hope that the economy isn’t taking such a massive hit as had originally been feared.

“The outlook for the housing market is definitely more stable than the broader economy,” said Domain Senior Research Analyst Nicola Powell. “While prices in most capital cities have declined, the falls have been minimal to date.

“The unprecedented government stimulus with HomeBuilder, JobKeeper and JobSeeker, mortgage holidays, low stock levels and record low interest rates are shielding values from any significant declines, and helping to retain stability in the housing market,” Dr Powell said.

Melbourne so far has borne the greatest brunt of the price slump, while Sydney has shown to have the second-biggest drop, following with Perth in third.

Sydney (New South Wales)

Sydney’s house and unit price recovery were halted over the June quarter, down 2% for houses and 1.9% for units. Sydney was in an upswing prior to COVID-19, but now the median price sits at $1,143,012 for houses and $735,417 for units. Price falls to date have been minimal due to significant government stimulus, mortgage holidays and low interest rates which have helped to support home values.

Melbourne (Victoria)

Melbourne’s house prices tumbled 3.5% with the median house price sitting at $881,369, over the June 2020 quarter. Unit prices have also declined by 1.7% and the median house price is now at $537,345 The second lockdown will continue to stall the positive momentum they had recovered from.

Brisbane (Queensland)

Greater Brisbane house prices fell 1.4% over the June 2020 quarter. This is the first quarterly fall in a year and the steepest in almost nine years. There was a promising growth prior to COVID-19, although reversed in June due to the economic aftermath of border closures and shutdowns. Unit prices have remained stagnant at 4.1% across Brisbane.

Adelaide (South Australia)

Adelaide was one of only three cities to record house price growth over the June quarter. The price lift was a modest 0.2% and this has pushed house prices to a record high of $553,036. Unit prices have slipped 2.9% over the June quarter, however. Adelaide provides affordability and stability which would be beneficial for the Australian economy.

Perth (Western Australia)

A house price recovery is still on the cards for Perth as the economic fallout appears to have paused a reverse in growth. House prices have declined by 1.5% and unit prices have decline by 4.9%. Perth’s current median house price is $522,414 and the unit median price is $334,284. 

Hobart (Tasmania)

Hobart house prices has seen a rise of 1.4% with the current median price at $529,388. For the first time on record, it is now more expensive to purchase a house in Hobart than it is in Perth and Darwin. House prices are 57.3% and units 70% higher than five years ago. Unit prices has declined by 1.5% with the median value price at $429,464.

Canberra (Australian Capital Territory)

Canberra house prices have increased with a strong 4.1%, bringing up the current median house price to $819,090 breaking a record high. This is also the first time Canberra house prices have pushed over the median value of the combined capitals since 2013. Unit prices slipped 1.3% over June with a median price of $453,750.

Darwin (Northern Territory)

Darwin’s house prices fell over the June quarter reversing the positive trend that had started to emerge. Darwin still remains the most affordable city to purchase a house, as even though they declined by 1.0% over the quarter, their median house price is $516,213. The unit prices have steeped lower with a 3.7% drop and the median price sitting at $241,461.

Words by Ece Demir

Sources:

Get in touch if you are looking to apply for the scheme or if you’re unsure about your eligibility. Our home loan professionals can help you understand your options if you think a renovation could be in your future. 

New data from the Australian Bureau of Statistics (ABS) has revealed a record high in the number of Australians choosing to refinance their mortgage.

According to ABS data, the number of households who chose to refinance their home loan between April and May jumped 29.2% (seasonally adjusted).

This was an increase on the month prior’s previous high of an 11.2% increase between March and April and showed a 63.1% increase year on year.

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RateCity Research Director, Sally Tindall said the figures were a response to homeowners looking for ways to better secure their financial position.

[Refinancing] went through the roof in May, as homeowners looked for quick ways to reduce expenses and get into a better financial position, she said.

Mortgage holders [who are] sick of paying an excessive loyalty tax are capitalising on the record low new customer rates on the market. Banks have been inundated with refinance applications, with some unable to keep up with the demand seeing processing times blow-out.

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In contrast, the ABS data also revealed a decrease in new home lending. New housing loan commitments showed an 11.6% drop (seasonally adjusted).

ABS Chief Economist, Bruce Hockman said this was the largest drop on record.

This was the largest fall in the history of the series, driven by strong falls in the value of loan commitments for housing in New South Wales and Victoria, he said.

The data showed a 10.2% drop in owner occupier housing, a 15.6% fall in investor housing and a 9.3% decrease in owner occupier first home buyer loan commitments.

Prime Minister Scott Morrison, however, assures any concern over the state of the housing market would be premature.

“I think it would be premature to be making medium or even short-term forecasts about the Australian property market at the moment,” he said.

“The thing about the Australian housing market is that demand has always outstripped supply, particularly in those markets which have been most heated.

“We’ve seen an undersupply of housing and oversupply of demand and that has always been what’s driven the housing market.”

Despite the lending fall, the July 2020 REA Group Insights New Homes Snapshot revealed increased interest among buyers for new homes.

The data showed enquiries made to developers on realestate.com.au jumped by 62.8% in June, following a 53.9% increase in May. Land enquiries were also up 93%.

REA Group executive manager of economic research, Cameron Kusher predicts the trend to continue.

I expect to continue seeing high levels of enquiry to developers as buyers look to capitalise on government incentives and historic low borrowing costs that are currently available, he said.

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Why are people choosing to refinance their mortgage?

According to Graham Cooke, insights manager at Finder, the recent jump in refinancing numbers indicates more people are seizing the opportunity to benefit from historically low interest rates.

“As budgets are stretched, a record number of people are deciding to get a better deal on their largest investment, he said.

“While the value of houses may well drop in the next year, the mortgages on them will not.”

Mr Cooke also emphasised the advantage the current interest-rate environment gives mortgage holders, rather than the banks encouraging borrowers to shop around for low rates and extra home loan features.

“Historically low interest rates and a lack of investor spending are a double whammy to banks, but a boon for mortgage holders,” he said.

“With the cash rate at 0.25%, the best home loan rates now start with a 2. If yours does not, it might be time to go home loan shopping. Additionally, now is a good time to ask for your bank to go the extra mile. Several lenders are offering to waive fees for new borrowers, and some are even offering extras like offset accounts at no additional cost.”

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How much can I save by refinancing?

The amount saved by refinancing will differ depending on the loan amount, the difference between the new and old interest rate and the length of the loan term.

In general, those who refinance can benefit from a lower interest rate, a reduced amount spent on interest over the life of the loan, a reduced loan term (if monthly repayments are kept the same) and extra features such as an offset account.

Savings and advantages of refinancing:

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Refinancing for those coming off mortgage holidays

For those currently on mortgage holidays, refinancing could be a way to resume making loan repayments.

According to Mortgage Choice CEO Susan Mitchell, those who can begin to make mortgage repayments again should be doing so. She also stressed the importance of using the low interest rate environment to seek out a better home loan deal.

This is the most home loan competitive environment in history. If you haven’t had your home loan reviewed in the last two years, you may be paying too much, she told Savings.com.au.

I’d urge any borrower in this position to speak to a mortgage broker to discuss their options.

It could be as simple as negotiating a better rate with your existing lender and if they are not willing to offer you a better deal, your broker can do all the legwork to help you refinance your loan with another lender.

Words by Kathryn Lee

Sources:

Get in touch if you are looking to apply for the scheme or if you’re unsure about your eligibility. Our home loan professionals can help you understand your options if you think a renovation could be in your future. 

A lot of Australians follow the standard mantra – why refinance when you can just forget about that huge mortgage looming over your head and take a set it and forget it approach? Why go through the hassle?

But, there are some compelling reasons to be more proactive with your home loan. Even if you aren’t trying to refinance to unlock equity for a renovation project, an investment property, debt consolidation, or other reasons, there is still a really good reason to keep an eye on how your mortgage compares with the loan you could have if you refinance.

If you can find a more competitive mortgage rate out there for you, you could save a lot of money.

For example, with a $400,000 loan, getting your rate down half a percentage point will translate to tens of thousands of dollars in savings over a 25 or 30-year mortgage.

Despite this fact, Australians are not rushing to refinance every couple of years. A new study reveals why.


Why Some Australians Aren’t Refinancing

A recent survey by CoreData of more than 1,500 mortgage owners reveals some of the reasons why refinancing isn’t on many homeowners’ list of priorities – even though about half believe they aren’t getting a good deal on their mortgage.

For many people, this may come down to a fear of being judged. People don’t jump at the idea of revealing the details of their financial lifestyle with a complete stranger – a mortgage broker or loan officer from the bank. As a result, more people are starting applications online or just staying out of the process altogether.

How Much Could Refinancing Save?

But, when you look at the numbers, you may rethink your lender loyalty, lack of motivation, or other barriers to refinancing.

With even a 0.2% rate reduction, with a $500,000, 30-year mortgage, you could save $21,000 in interest.

Refinancing to a 0.5% lower rate would translate to over $50,000 in interest savings on a 30-year loan.

Knowing the potential cost savings, it’s, at least, worth it to compare your loan with what other lenders are offering. You also can watch for refinancing deals like rebates or cheap introductory rates, which could help you save even more money.

What about Switching to a Fixed Rate Loan?

In the current interest rate climate, there’s another reason why you may want to look into refinancing.

Interest rates in Australia are still low, with the RBA sitting on record lows since 2016. At some point, the RBA is expected to increase the cash rate. In talks this spring, officials acknowledged that the rate is more likely to go up than down, although the when could still be months, even years away.

Here’s the thing. If you have a variable rate loan and the cash rate goes up, you can bet your lender will raise your mortgage rate as well, along with probably every other bank in Australia. This means your repayments will increase, as will the amount of interest you’ll have to pay. In fact, the major banks like Westpac and NAB started inching up rates in 2017, and smaller lenders have been following suit since then.

Depending on how tight your budget is, rising rates can become an issue. It can throw off your budget if you suddenly owe another $100 or more a month, which means you’ll have to sacrifice other expenses just to keep up with your mortgage.

This is why some first-time homebuyers are considering fixed rate loans or, at least, are fixing the rate on part of their loan. With a fixed rate, if market rates go up, you know the fixed portion of your loan will stay the same for a pre-determined period. However, with interest rates being so low, some borrowers don’t want to leave it all variable and are choosing the option to fix part of their loans.

There’s no guarantee that rates will rise and a fixed rate loan will prove to be a smart move, but it’s something you want to consider, especially if you’d have trouble managing a higher repayment amount.

It is another reason why some Australians are taking the initiative to refinance now. If you can refinance before rates go up to a fixed rate loan, you can protect some of your finances. Switching to a fixed rate loan may also offer a lot of peace of mind.

Why Bother Refinancing?

Mortgage rates change over time. So do your financial needs and goals. These are almost laws of the universe! So, why shouldn’t your home loan evolve as well?

Refinancing does come with some risk and can include a variety of costs including exit fees, application and valuation fees, and other expenses, so look at the whole picture before you apply for a new loan. But, if you do find that you could save, are the reasons you may be putting off refinancing really worth it?

Are you looking for a more competitive home loan rate? If so, then contact refinancing.com. Our brokers have access to 100’s of products and have helped thousands of Australian’s secure the right home loan at more affordable rates.

Of all the numbers you have to keep track of – telephone numbers, password codes, birthdays – the one that will impact your life the most a lot of people don’t remember: your home loan rate. A recent survey by UBank has revealed that as many as 82% of homeowners in this country do not know the interest rate on their home loan.

Your mortgage rate is not something you want to overlook. Not just because the rate you are paying down your home loan at dictates the overall cost of probably your biggest purchase in life, but also because this is one number you do have some control over. If your rate isn’t working for you, the only way to fix it is to know there is a problem in the first place.


The Current Numbers

UBank’s 2018 reportThe UBank Know Your Numbers Index, revealed that the number of people who do not know their interest rate is still remarkably high. In 2016 and 2017, 84% and 85% of Australians, respectively, weren’t sure of their home loan rate. That number has only dropped slightly in the past year – down to 82%.

About half of the survey participants who didn’t know their rate at least had an approximate idea, but still, a good 40% or so each year have no idea.

After seeing the results of this survey, the CEO of UBank, Lee Hatton, provided some advice for all homeowners. She said that homeowners should not only know their home loan interest rate, but they should also continually be checking the interest rates of various banks to see if a better deal is possible.

Hatton went on to say that your home loan is certainly one of the largest investments you will make in your lifetime. Getting a lower interest rate on that loan could be a great way to save many thousands of dollars.

Many Australians Are Under Financial Pressure

The irony is, the same survey found that the majority of Australians feel stressed out by their current financial situation. But, not knowing may be the foundation of financial stress, rather than the actual current state of your finances.

By knowing your home loan rate, as well as your other monthly expenses, you have more power to take control of your money, to reign in overspending, and to reach a place of financial security and freedom.

But, when you don’t know – or don’t want to know – you aren’t in a position to make improvements to your financial health.

Once there is some stress being felt over your ability to make the payments, you, like many other Aussies, may start to make sacrifices and tough financial choices that can impact your quality of life. Hatton says that the more you are aware of the numbers, the better prepared you can be to deal with your debt. It can enable you to refinance to create less debt, allowing you to have a better life.

Right now, only about 20% of Australians say they have full control of their finances. Instead of feeling like debt and financial obligations are controlling your life, make a habit out of knowing your home loan rate, as well as other important numbers like your total debt and also how you are doing with your retirement saving and investment goals.

And, identify where you can make changes. One of the best ways to turn your financial situation around could be to refinance your home loan. If you can switch to a lower rate, you may be able to reduce your monthly repayments, lower the total cost of your loan, and pay it down faster.

Refinancing Could Improve Finances

The report put out by UBank further indicated that about one-fourth of those surveyed knew that they could save money by refinancing their mortgage. They also felt that it was a good idea, but they had not yet discovered the best rate.

If you are in a good position to refinance – if your credit is good and you have enough equity built up in your home – take a look at the home loans available from different lenders. Use a mortgage switching calculator to compare how much you could save if you switch to a lower rate, keeping in mind things like maintenance fees for your new home loan and how much it will cost you to refinance.

When you look at the numbers, you may find that taking control of your home loan rate with a better mortgage will help to alleviate a lot of the financial stress you may be dealing with.

Take for example the following savings comparison: For a loan amount of $450,000, switching from an interest rate of 4.2% p.a. down to 3.68% p.a. could save you $134 every month. Over the course of a 30-year loan, you could save a total of $48,380! How’s that for helping you sleep at night?

Even with the costs of refinancing, which can hover around $1,000 as long as you don’t have any break costs or exit fees to deal with and you don’t have to pay lender’s mortgage insurance, you could still save tens of thousands of dollars.

How to Get a Better Home Loan Rate

In order to get a lower home loan rate, there are a few techniques you can use.

If you do refinance, don’t forget to keep track of your home loan rate in the future. Make sure you know what you are paying and track how your rate changes if you are paying a variable rate loan. You can always refinance again in a few years to get an even better deal!

Are you looking for a more competitive home loan rate? If so, then contact refinancing.com. Our brokers have access to 100’s of products and have helped thousands of Australian’s secure the right home loan at more affordable rates.

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