“How much could I save by refinancing?” This is a question that seems to be on a lot of homeowners’ minds lately. With news reports creating ongoing speculation about when interest rates will start rising, it seems many mortgage holders are choosing to refinance their home loans now. The latest data from the Australian Bureau of Statistics (ABS) shows that the total value of refinanced home loans equalled $17.2 billion in July 2021. That figure represents a 60% increase in just the last 12 months. According to Katherine Keena, the head of Finance and Wealth at ABS, “this reflected borrowers seeking out lower interest rates, particularly for fixed rate loans, and cashback deals across a large number of major and non-major lenders.”
Despite this surge in refinanced home loans, some Australian homeowners remain undecided. Is this a good time to refinance? How much could you save by refinancing? And what are industry experts predicting interest rates will do in 2022?
Is This a Good Time to Refinance?
In the wake of rolling COVID lockdowns and a disrupted economy, more Australian homeowners are looking for ways to reduce their expenses. And thanks to climbing property prices and a record low cash rate, many have discovered that this is an excellent time to refinance a home loan.
The Reserve Bank of Australia (RBA) has repeatedly said they plan to leave the official cash rate unchanged until 2024. Because of this, many lenders are still offering highly competitive fixed term home loans, with interest rates of less than 2%. In fact, according to statistics collected for 9News, in July 2021 there were 189 different mortgage products on offer with interest rates lower than 2%. This same report also found that 3 of the 4 big banks were offering 2-year fixed rates below 2%.
The increased number of refinancing homeowners has also resulted in more competition between lenders. This has led some lenders to offer cashback incentives of up to $3,000 to homeowners who choose to refinance their mortgages.
How Much Could I Save by Refinancing?
Refinancing your home loan could save you a significant amount of money by enabling you to access a more competitive interest rate. Based on information released by the RBA, the average homeowner is currently paying 2.92% interest, while a new customer with a fixed rate loan will only be paying 1.98%. And while a 1% difference may not sound like a lot, it could add up to a substantial amount over the course of a 30-year loan.
For example, imagine you had a $600,000 mortgage with a 30-year term and a 3-year fixed interest rate of 2.92%. With these conditions, your minimum monthly repayments would be $2,504. By refinancing to a comparable home loan with an interest rate of 1.98% (also fixed for 3-years), your repayments would drop to just $2,212 per month. That’s an immediate saving of almost $300 per month and a total saving of almost $20,000 over the life of the loan. If your current interest rate is 3% or higher (quite likely if your loan is more than a few years old), then you could access even greater savings by refinancing to a lower interest rate.
What Are Industry Experts Predicting Interest Rates Will Do In 2022?
Some lenders have already started increasing their 3-, 4- and 5-year fixed interest rates in preparation for the official cash rate going up in 2024. And most industry experts are predicting that interest rates will continue to rise in 2022. This means that homeowners who hold off on refinancing until 2022 are at real risk of missing out on the best home loan deals.