Home Refinancing Hits Record Highs

July 29, 2020

A model house with calculator and coins representing the savings to be made through refinancing.

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:

  • Save money. An interest rate reduction from 3.92% to 2.60% on a $400,000 loan with Principal and Interest monthly repayments would equate to a saving of $290 per month in repayments. Over the life of the loan, this could mean over $10,000 in savings on total interest paid.

    Use the eChoice Loan Repayment Calculator to compare your interest rate to a lower rate.
  • Pay off your loan sooner. If monthly repayments are kept the same when the interest rate is reduced, refinancers can benefit from having their total loan amount paid off sooner.

    Alternatively, if the original loan term is kept and monthly repayments reduced, this can mean more cash-in-hand each month for other expenses.
  • Add an offset account. An offset account is similar to an everyday spending account, only its balance can offset your mortgage. Refinancers who choose to add an offset account to their new home loan deal can benefit from only paying interest on the difference between their principal loan and the balance in their offset account.

    Read more: What is an offset mortgage account?
  • Invest. Some mortgage holders use low interest rates as a chance to refinance their home loan and borrow more money, which can be used on other investments. This could mean using the extra funds to purchase an investment property or renovating their existing home.

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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


Written by Refinancing.com.au

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