‘Discounting behind the scenes’ – refinancers can get big savings

For those who locked in their loan rate, the good times may be about to end.

For those who locked in their loan rate, the good times may be about to end. Photo: Getty

Hundreds of dollars in savings remain on the table for the record number of Australians struggling to pay their mortgages after Reserve Bank interest rate hikes.

Central bank data shows the average interest rate being paid by owner-occupiers is 6.23 per cent – an increase of 3.37 percentage points since rates were first raised in May 2022.

But that’s less than the four percentage points of hikes passed by the RBA, showing that many home owners have managed to avoid the worst of the squeeze by refinancing their mortgages.

RateCity research director Sally Tindall said significant savings are still available for Australians who have remained loyal to their bank over the past year and haven’t sought better interest rates.

She said the major banks, which hold the majority of home loans, are all advertising rates of 6 per cent or above, despite the average rate for new customers being significantly lower.

“The big four banks are discounting behind the scenes, particularly for ideal customers and ones that ask,” Tindall said.

In other words, cheaper prices await those who are willing to walk away from their bank and pick up the phone to tell them as much; particularly as the best rates in the market are 5.5 per cent.

RateCity said a borrower with a typical $500,000, 25-year home loan could save up to $197 in repayments a month ($6291 over two years) by refinancing to the average 6.23 per cent rate.

If that home owner managed to secure a market-leading rate, they could save up to $12,415 over two years – and that’s including an estimated $1150 in switching costs.

Two lenders are offering variable rates under 5.5 per cent right now, while there are 32 others advertising 5.75 per cent (excluding introductory rates).

Borrowers struggling

Such savings could be game-changing for many households as new data shows record numbers of Australians are struggling to keep up with mortgage repayments.

As the cost-of-living crisis continues, Roy Morgan data has tracked 1.57 million people who are “at risk” of mortgage stress (a record), while a Canstar survey of 900 published on Wednesday showed 69 per cent don’t believe they’ll “be OK” if the RBA hikes interest rates again.

It’s no wonder that $20.6 billion in loans were refinanced in August, according to ABS data published on Tuesday, as hard-hit families do whatever they can to avoid financial pain.

But Canstar finance expert Steven Mickenbecker said that’s only about 1 per cent of the total value of home loans more broadly.

“The savings should be too big to ignore, but that is what many borrowers are doing,” he said.

Research is confidence for refinancers

Tindall said Australians should be prepared before undertaking a negotiation about their mortgage rate, including having a firm knowledge of what rates are available in the market.

That way when the bank manager tries to push a bad deal, you’ll know straight away.

“A bit of research will give you confidence that you know what you’re talking about,” she said.

“When you go into negotiations with your bank about getting a rate cut they’ll provide you with an initial offer, but if you keep pressing them – politely of course – you might get an ever bigger discount.”

One tip is to be wary of comparisons of your rate against a bank’s standard variable rate (SVR); that might make your offer look compelling, but remember it’s not a market-wide comparison.

In other words, the size of your discount off a benchmark rate doesn’t matter nearly as much as the interest rate on the offer itself – that’s what will determine how much you will pay a month.

The other important piece of information to have handy relates to your own circumstances.

You need to know how valuable a lender you are to the bank, which is based on your history of repayments and the amount of equity you’ve managed to build up in your property over time.

Home owners with a good track record paying down their loan and a significant amount of equity in their property should be able to obtain market-leading rates.

So if that sounds like you, and you’re paying more than 6 per cent, it might be time to consider refinancing.

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