Home lenders offering switching incentive ahead of the holidays

Lenders could be offering mortgage holders a limited-time holiday offer with 53 or 8% of owner occupier variable rate loans being marketed today with an interest rate that is below 6%, according to Canstar.

Canstar’s research shows the bulk – more than two-thirds or 42% – of variable rate loans on offer to new customers and those who switch lenders ahead of the holidays have an interest rate that is between 6% and 6.50%.

The RBA kept the cash rate on hold in December, but that doesn’t mean mortgage holders should tough it out on higher interest rates until rate cuts are on the cards.

Canstar’s finance expert, Steve Mickenbecker explains, “The December Reserve Bank Board meeting is the last until February, which will come after the release of the next quarterly inflation number and if it is tracking towards the 2% to 3% target band, there will be reasonable grounds for optimism that interest rate increases are behind us.

“Reserve Bank cash rate cuts are looking more likely to happen in 2025 than next year, so the challenge people should be taking on over that two month period is to give themselves an earlier rate cut for Christmas, so that they start the new year with a lower repayment.

“Canstar’s analysis of new owner occupier variable interest rates shows that rates offered by lenders spread all the way from 5.5% to 9.5%. It means that there are borrowers who will be paying 3.5% more than the savvy ones who have found their way into the leading deals and are effectively being subsidised by the high rate payers.

“Four in ten variable rate loans fall into the 6.0% to 6.49% band and any borrower paying more should be looking at refinancing or renegotiating to get ahead of that herd into a loan that will save them money every month. At least don’t fall into the laggard group.”

How to put $150 per month back in the hand for the holidays

Aussies continue to make the switch with the Australian Bureau of Statistics reporting on Monday that in October 20,518 owner occupier loans were refinanced to a new lender, however, this was down from the peak of 28,150 reached in July 2023.

According to the latest RBA Lenders’ Interest Rate data, existing mortgage holders are on average paying a rate of 6.18%, which likely doesn’t include the impact of the November cash rate rise as this is still to flow through to many mortgage holders repayments schedules.

Existing borrowers who refinance a $500,000 loan that they were repaying over 30 years from a rate of 6.18% to the lowest ongoing variable interest rate listed on Canstar.com.au at 5.69% (comparison rate 5.69%) could reduce their repayments from $3,056 down to $2,899. This is a saving of $157 per month or as much as $1,884 – the cost of an annual electricity bill for many households.

In addition to the repayment savings, those able to make the switch will also cut their loan’s interest bill from just over $600,000 down to $543,580, which is a saving of $56,529 in the long run.

Bigger savings could be on offer if they make the switch to the lowest variable rate loan and are in a financial position to be able to maintain their repayments at the higher amount. For example, if this same borrower continued to pay $3,056 per month to their new lower-rate loan instead of the reduced repayment of $2,899, they could potentially save $134,171 in interest and repay their loan over 3 and half years sooner.

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Source: www.canstar.com.au – 1/12/2023. Average Existing Borrower Rate per RBA Housing Lending Rates, September 2023. Lowest variable rate based on owner occupier variable rates on Canstar’s database, available for any loan amount and LVR, P&I repayments, and excluding introductory, first home buyer only and other special condition loans. Loan calculations based on a loan amount of $500,000 and a loan term of 30 years.

Mickenbecker adds, “Moving from the average rate to the lowest variable rate on Canstar can save around $150 a month in repayments on a $500,000 loan or knock three and a half years off the term of the loan. It’s too big a prize to ignore.”

“Long-term borrowers who have modest-sized loans are less likely to be feeling huge pain from the rate increases of the past 18 months, but they are also the ones most likely to be at the end of the long tail with very high rates. Just because they can doesn’t mean they should be gifting extra margin to the bank every month.

“It’s difficult to find any good reason for a borrower to be paying a rate above 7.5 percent, yet 21 percent of loans are in this category.”

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