If you’re set on starting the new year with a fresh financial focus, honing in on your biggest savings opportunity could be the place to start.
For many Australians that’s their home loan. A mortgage in the hundreds of thousands of dollars is likely to be the largest debt most people have, which means even a small interest rate reduction could provide significant savings – particularly over the long term.
The thing is, plenty of mortgage holders are paying more than they need to on their home loan rate.
“A significant number of Australian home loan borrowers have not switched lenders for several years, yet they stand to save so much money by doing so,” said ACCC Chair, Rod Sims, in the wake of the consumer regulator’s home loan price enquiry released in December.
So, if this is the first time you’ve checked in on your home loan rate in recent years, you might be in for a surprise, because rates have shifted greatly and your own rate might not have kept up.
Difference in average^ owner occupier rates (January 2019 vs January 2021)
|January 2019||January 2021||Change|
As the table above shows, the drop in the average variable and fixed home loan rates has been substantial, even in just two years.
So the big question is: has your own rate kept pace with these changes? If not, you’ll probably be curious as to how much you could potentially save by refinancing to a better deal.
How much could you save with a lower rate?
To showcase the potential savings on offer for refinancers, here’s a scenario using owner occupier borrowers Mya and Ken. The couple currently have an outstanding mortgage of $400,000 and a variable rate of 3.31% (the Mozo average) which they’re planning to pay off by making principal and interest repayments over 20 years.
At that rate – according to our home loan repayments calculator – Mya and Ken would need to make monthly repayments of $2,281, and over the life of the loan they would end up paying $147,434 in interest alone.
However, here’s what those numbers would look like if the pair were able to refinance their home loan to a variable rate of 2.50% – a rate which is low, but by no means the lowest in our database at present:
- Their monthly repayments would drop to $2,120 which is $161/month less
- The amount of interest they would pay over 20 years would fall to $108,707 which is $38,727 less
- Assuming they were able to refinance in the next few weeks, Mya and Ken would be able to save over $1,700 in monthly repayments in 2021 alone
That’s a significant difference, even in the short term.
Of course, refinancing won’t be the right move for every mortgage holder. Some borrowers will already be on a competitive interest rate, while others may be unable to refinance because of their financial situation – so called ‘mortgage prisoners’.
There are also additional costs to weigh up against the potential savings on offer from refinancing, including any discharge or break cost fees from your existing lender, or new fees that you’ll be charged by a new lender.
RELATED: Switching from a variable rate to a fixed rate: What should you know?
If you are interested in refinancing, get started by plugging in a few numbers from your current home loan to our switch and save calculator, or compare rates on loans from over 80 different lenders yourself by heading over to the Mozo home loan comparison hub.