Is Your Home Loan Rate Still Competitive?
Home loan rates are everywhere at the moment. Some lenders are advertising variable rates below 6%. Others are offering cashback to attract new customers. Fixed rates are back in the conversation, and every change in the cash rate brings another round of headlines about how much borrowers could save by refinancing.
If your home loan rate starts with a six, it’s reasonable to wonder whether you’re paying too much.
But there’s a more useful question to ask:
Is your home loan still competitive?
They might sound like the same thing. They’re not.
What Are Australian Borrowers Actually Paying?
According to Reserve Bank of Australia (RBA) lending data, the average interest rate currently being paid on outstanding owner-occupier home loans is around 6.21%.
At the same time, there are variable home loan rates available below 6%. On the surface, that might seem like a straightforward reason to refinance. And sometimes it is. But the difference between two interest rates only becomes meaningful when you apply it to the amount you actually owe.
Take a borrower with $350,000 remaining on their home loan.
If they are paying 6.21% and may be able to refinance to 5.99%, the difference in their monthly repayment will be around $50, depending on the remaining loan term. That’s still a saving. But it’s a long way from some of the thousands-of-dollars-a-year refinancing examples you may have seen.
Change the numbers, however, and the picture changes quickly. If that borrower was paying 6.80%, or had a substantially larger mortgage, refinancing could produce a much more meaningful result.
That’s why headline rates only tell part of the story.
The Lowest Rate Isn’t Necessarily Your Rate
When you see an owner-occupied home loan advertised at 5.85% or 5.89%, the rate is genuine, but that doesn’t necessarily mean it will be available for your loan. Eligibility can depend on factors such as your loan-to-value ratio, the amount you’re borrowing and the particular loan product.
So the useful comparison isn’t between the rate you have and the lowest rate you can find online.
It’s between the loan you have and the alternatives actually available to you.
What About Refinancing?
We regularly speak with clients who have seen a lower advertised rate and want to know whether they should refinance. The first thing we do is run the numbers. Sometimes the answer is yes.
If your existing rate is well above what is available to you, particularly if you still have a substantial loan balance, refinancing can make a significant difference.
Other times, the numbers tell us something quite different. Many established homeowners no longer owe anything like the size of today’s average new mortgage. If their existing interest rate is already reasonably competitive, moving to another lender for a slightly lower rate may make surprisingly little difference to their weekly or monthly repayment. In those circumstances, refinancing simply for the sake of having a lower interest rate may achieve very little.
And sometimes there is another option: your existing lender may be prepared to review the rate you are already paying.
And What About Fixing?
Fixed rates are also attracting attention again. But choosing a fixed rate is a slightly different decision.
A fixed rate isn’t necessarily about finding the lowest interest rate available today. For many borrowers, the attraction is certainty. You know what your repayments will be for the fixed period, regardless of what happens to variable rates.
That certainty can be valuable, particularly if your household budget would benefit from knowing exactly what the mortgage will cost each month.
For someone with greater capacity to absorb changes in repayments, the flexibility of a variable loan may be more important. Neither is automatically the better choice.
Start With Your Own Numbers
The home loan market is competitive. That’s good for borrowers. But it also means there will almost always be another lender advertising a rate slightly below the one you’re paying. Five or ten basis points can look important on a comparison table. Depending on your outstanding balance, it might make very little difference to your household budget.
At the other end of the scale, if you’re paying substantially more than the rates currently available to you, there may be a genuine opportunity to reduce the cost of your loan. The only useful way to know is to compare your rate, your loan balance and your circumstances.
If you’re wondering whether your current home loan is still competitive, talk to us.
We can review what you’re paying, look at the alternatives available to you and put the difference into dollars. If there’s a worthwhile reason to refinance, we’ll show you.
And if there isn’t, we’ll tell you that too.
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