How to get a home loan discount without refinancing

The cash rate is widely tipped to have reached it's peak, but that doesn't mean it's all downhill for borrowers.

Data shows lenders have continued to lift rates out of cycle on some fixed - and variable-rate home loan products, despite no move by the Reserve Bank of Australia for three consecutive months.

But there's substantial savings to be made for borrowers who get on the front foot, and they may not necessarily need to refinance to reap the benefits!

Lenders are heavily focused on retention to keep that business on their books. Depending on factors such as a borrower's loan to value ratio, a variable ratio of 5.79% to 5.84% is considered competitive in the current market.

In July, existing borrowers were paying an average variable rate of 6.23% while new customers were paying 5.95% - a gap of 0.28%.

That's narrowed from a 0.5% gap at the start of 2023, when existing borrowers were paying 5.46% on average, compared to 4.96% for new customers.

Had this conversation been had a few months ago, we would have said for new-to-bank clients, the interest rates are fantastic and existing clients don't feel the love, but right now, a lot of the lenders are showing them that love.

With fewer cashback deals on offer, which subsidise or cover the cost of refinancing, switching to a new lender may not always financially stack up.

It all depends on what the cost is, versus the saving - if you're looking at 0.5% or something crazy obviously there's financial benefit to refinance.

While an interest rate discount of 0.5% may not sound like much, it amounts to a $58,000 saving for a borrower with a $500,000 home loan.

On a $750,000 mortgage the savings add up to $87,500, and a borrower with a $1 million home loan could  reduce their interest bill by $116,000 by getting a 0.5% discount on their home loan.

But the savings could be even more substantial for borrowers who have remained complacent over the past 18 months.

RBA data shows the average owner occupier variable home loan was sitting at 2.86% in April 2022, before the first cash rate hike.

Had their lender passed on each hike in full, their mortgage rate would now sit at 6.86%, more than one percentage point higher than the most competitive rates on the market.


Home Loans
Written by Chloe Boswell
13 November, 2023
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