Refinancers chasing lower home loan rates with record-low cash rate

Though the cash rate is on hold this month, previous cuts in November and earlier this year have seen home loan rates track down to record lows. Canstar spoke to some refinancers who have jumped on the opportunity to get a better home loan rate and make their finances more manageable in the year of the pandemic.

The Reserve Bank of Australia (RBA) board made the decision to keep the official cash rate on hold at 0.10% today, at its last monetary policy meeting for 2020.

This year has been marked by huge and unanticipated changes for most Australians, with many experiencing financial pressure. As such, some of us have looked for ways to make room in the budget.

In fact, Canstar’s annual Consumer Pulse Report, released yesterday, found 14% of Australian mortgage holders surveyed had switched home lenders in 2020 in order to get a lower interest rate, with a further 17% intending to switch.

At the same time, the report found nearly one third (32%) of borrowers had successfully negotiated a lower home loan rate with their current lender this year.

Brisbane-based homeowner Claudine Kolzewski is one such individual who has taken advantage of record-low rates to review her home loan status, ultimately making the decision to refinance to a loan that she said had a better interest rate and more flexibility.

She managed to secure herself a discount of 0.95 percentage points off her mortgage rate at her current lender, opting to change from what was a three-year fixed loan to a variable loan with an offset account, which she found more manageable and flexible.

“I had to ask the lender twice for a lower rate, as the first time they offered 2.99%. When I advised that many other lenders were offering around 2.50% with offset, they offered me 2.74% which I accepted,” Ms Kolzewski told Canstar.

“I did want to take the opportunity to fix my home loan while interest rates were low, but many friends, family members and financial articles indicated that rates should remain low for a while anyway. My new loan allows me to take advantage of the offset account.”

Like many borrowers, Ms Kolzewski said she experienced an unexpected financial strain due to a reduction in work during the pandemic, and was offered a COVID-19 home loan repayment pause from her bank. While she said this made it difficult to switch to a different lender, her existing one was open to negotiating at the end of the freeze.

“Even though the pandemic negatively impacted me financially for around four to five months, it also forced me to sit down and work out my current finances and my savings plans moving forward,” Ms Kolzewski said. “This has had a positive impact on my financial outlook, now that I am back to full-time work and pay.”

If rates remain low, as is widely anticipated, Ms Kolzewski said she would consider refinancing again in the new year to a new lender if her current bank does not review her rate again.

Brady Woodhead is another borrower who is looking for a better home loan rate after noticing the cash rate fall this year.

He recently purchased the home he lives in in Brisbane’s north-western suburbs, and told Canstar he is considering refinancing his three-year-old investment property in Nundah with the aim to boost his profits.

“Investment rates pretty much across the board are all a lot lower than my initial rate was,” Mr Woodhead said. “So refinancing now to score a better interest rate means I get to save more money each week.”

While he would have preferred to keep both his owner-occupier loan and the investment loan all under the one umbrella at the same bank, Mr Woodhead said he will probably split them up, as he has found lower interest rates at other lenders.

He said he’s also looking for a variable rate loan for now, and waiting out to see if rates go any lower before choosing to fix.

“There is that bit of caution there around staying variable for the moment,” he said.

Luckily, his tenants at his investment property have still been able to work and continue to pay rent, so they have not asked for any rent subsidies during the pandemic.

“The asset is paying for itself, just about breaking even. After refinancing, it should start making a bit more of a profit,” Mr Woodhead said.

“Massive incentive” for borrowers to explore savings on offer

It’s a good time to be looking for a better deal, according to Canstar finance expert Steve Mickenbecker.

Although the cash rate was left on hold this month, he said the RBA’s quantitative easing measures would hold lenders’ funding costs down and, as such, keep borrowers’ repayments low.

“With homeowners reporting in Canstar’s latest Consumer Pulse Report that their home loan rate is 3.65% on average, and Canstar listing 93 loans below 2%, there is massive incentive for borrowers to go online and explore the huge savings so widely on offer,” Mr Mickenbecker said.

Banks have generally followed the RBA’s three cash rate cuts this year, with many on Canstar’s database reducing home loan rates to record lows starting with a ‘1’.

In fact, 27 lenders on the database cut 125 variable rates by an average of 0.17 percentage points last month alone, which was greater than the 0.15 percentage point cut to the cash rate at the beginning of November.

There could be even cheaper deals to be found among fixed rate loans, helped by 63 lenders having cut 1,143 fixed rates by an average of 0.31 percentage points in November.

Top home loan interest rates on Canstar’s database

Canstar’s research analysts found the top home loan rates currently on our database for owner-occupiers and investors that are available for external refinancing (switching to a new bank). These rates are sorted by advertised rate, then by comparison rate, and are for a loan size of $400,000 at an 80% loan-to-value ratio (LVR).

Top 3 variable home loans: Owner-occupiers & investors

Source: www.canstar.com.au – 1/12/2020. Based on variable loans on Canstar’s database available for a loan amount of $400,000, 80% LVR and principal & interest repayments; excluding first home buyer only loans. One product per provider is listed; with the top 3 selected and table sorted in ascending order by rate, followed by comparison rate. Comparison rates calculated based on a $150,000 loan amount over a total loan term of 25 years. *Smart Booster Investor Bundle rate only available to customers who also have an Owner Occupier loan with loans.com.au.

Top 3 fixed home loans: Owner-occupiers & investors

Source: www.canstar.com.au – 1/12/2020. Based on fixed loans of any term on Canstar’s database available for a loan amount of $400,000, 80% LVR and principal & interest repayments; excluding first home buyer only loans. One product per provider is listed; with the top 3 selected and table sorted in ascending order by rate, followed by comparison rate. Comparison rates calculated based on a $150,000 loan amount over a total loan term of 25 years.

If you’re currently considering a home loan, the comparison table below displays some of the variable and fixed rate 1-year home loans on our database with links to lenders’ websites that are available for homeowners looking to Refinance. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value and that offer an offset account. Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.

This article was reviewed by our Sub Editor Tom Letts before it was published as part of our fact-checking process.