Why it's not too late to break up with your bank and refinance to save on mortgage repayments

More than one million Australians have refinanced in the past 12 months, and if you’re thinking that after six months of consecutive interest rate rises you’ve missed the boat on saving money on your mortgage repayments, the message from experts is: it’s not too late.

Property settlement platform PEXA estimates those who have already refinanced are now saving $1524 a year on average, and head of research Mike Gill says another 2.28 million Australians are considering refinancing in the next two years.

“Our consumer research confirms there is a level of uncertainty felt by mortgage holders, with an estimated 71 per cent feeling anxious about the prospect of rising interest rates, 49 per cent worried about their job [or] financial security, and 73 per cent are regularly reviewing their interest rate against market trends,” Gill says.

The Reserve Bank of Australia has raised rates by 2.6 per cent since May this year, which has added $1111 to the cost of a $750,000 loan every month.

For those left feeling deflated and wondering if they’ve left it too late, it’s imperative that people know there’s still time to change lenders and save money on repayments before rates rise further, Domain Home Loans chief executive Kareene Koh says.

“Even though rates have gone up considerably over the past six months, this trend is set to continue,” she says. “It is important to have a financial health check and if you are in a position to refinance, look for a better rate.” 

Here’s why it’s not too late to break up with your bank:

Rates are likely to keep going up

Despite the Reserve Bank slowing down the pace of its interest rate hike last month, lifting it by 0.25 per cent instead of 0.50 per cent, Westpac has tipped another 0.50 per cent rate rise in November.

This would see the cash rate sitting at 3.1 per cent – a whole 3 per cent higher than rates were just seven months ago. 

Someone with a $500,000 variable loan is now paying $742 more a month than they were before rates started rising. If rates do go up another half a percentage point, homeowners will have to pay another $151 a month on top of that again.

By switching to a lower rate – even 0.5 per cent less than what they are paying now – home owners could save hundreds of dollars. “Your rate isn’t going to go down if the RBA rates are going up,” says Natalie Abel of Domain Home Loans.

You could land a more competitive rate

If a home owner sticks with their current bank, they could find themselves paying a “loyalty tax” – the premium they pay for staying with their lender – without realising they could be getting a better deal elsewhere as a new customer.

Banks will often favour new customers and give them a better deal than existing customers who make payments on time and have a good credit history, simply because they are new business.

If your current lender hasn’t “checked in” to see if savings could be made, this is a sign that you should be exploring your options to see if there are more competitive rates out there, Abel says. 

“[If] their bank has never called to reduce their rate, this is a great reason to not stay loyal to your bank,” she says. “If you leave it any longer you will keep being charged the same higher rate.”

Reach personal and financial goals 

A home owner’s priorities typically change over the life span of their loan. Exploring options and switching to a loan with features that match their circumstances – such as fixed interest rates – may help save money in the long run.

Additionally, refinancing allows home owners access to the equity they have built in their homes, which can then be used to renovate, put a deposit down on an investment property or buy a car.

It could be worth refinancing to see if equity can be accessed in order to reach finance or property goals, says Domain Home Loans specialist Marcus Russell.

“The bank is there to make money off of your loan, that is their number one directive,” he says. “So it’s never a bad time to try and find a cheaper one – at the very least, it’s a conversation where you can find out if there is a better option.”

Lenders typically allow home owners to borrow up to 80 per cent of the value of their home when they refinance. This means available equity could be in the hundreds of thousands, depending on the home.

Access to better features and perks

When home owners switch to a different lender, they can often reap the benefits of being a new customer. A host of lenders offer extra incentives like cash-back offers, where you get money back when you take out a loan.

The cash-back sum might be a percentage of the amount borrowed – 2 per cent, for example – or be a fixed amount, such as $2000.

“Now is always a good time to do something,” Abel says. “Don’t wait any longer while you are being charged more than another bank would give you.

“Book to have a chat with a broker about your current loan situation and see if a better rate and rebate can be offered than you are on.”