One step to pocket big savings in 2021
If there's one goal to set yourself for 2021, it's to take a good look at the rate you're paying on your home loan.
Over the last 12 months interest rates have plunged. Plenty of home loans now have rates below 2%, and that’s driven extraordinary activity in mortgage refinancing. According to the Australian Banking Association, around half a million home loans were refinanced in 2020.
But that’s a drop in the ocean. Six million properties nationally have mortgages against them. And if you’ve had the same loan for several years or more, it’s a fair bet you could slash the rate you’re paying by switching to a new loan or lender.
A recent home loan price enquiry by consumer watchdog – the ACCC, confirms that many Australians with older loans continue to pay significantly higher rates than new borrowers, potentially costing them thousands of dollars over time.
As a guide to the possible savings of refinancing, the ACCC says borrowers who’ve had their home loan for 3-5 years are paying around 0.58% more than the average rate on new loans. To put that in perspective, switching a home loan worth $250,000 could see you save more than $1,400 in interest in the first year, with potential savings topping $17,000 over the remaining term.
The older your loan, the bigger the likely savings. If you’ve had the same loan for 10 or more years, you could be paying 1.04% more than the rate a new customer will pay.
To encourage fairer home loan rates for all, the ACCC has recommended that lenders be required to regularly prompt borrowers whose loans are older than three years to review their current interest rate and consider the potential benefits of switching products or lenders.
But why wait for lenders to take action? Getting a better deal on your home loan can get your finances in great shape for 2021 – and the sooner you act, the sooner you pocket savings.
Sure, refinancing can involve some effort. The reward can be a significant reduction in what is likely to be your biggest household expense.
If you don’t have the time to hunt for a better deal, it’s worth talking to a reputable mortgage broker who can do the legwork on your behalf at no cost to you.