Is now the best time to refinance your home loan?

Published on December 2nd, 2020
  Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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This month, the Reserve Bank of Australia met to leave the official cash rate at the same level. This is the 11th consecutive time the RBA hasn’t moved the interest rate, still at a record low.

Even so, average home loan interest rates have been creeping up. The Standard Variable Rate hit an 18-month low of 4.78% – it now stands at 4.92% (all following figures are averages.) The “cheapest” of all the standardised options, the two-year fixed rate loan dipped at a 4.2% (max) in November 2016. It’s now crept back up to 4.74% (max.) All the trends are upward, not down. So what’s going on, and how does that help your decision to refinance?

Explaining the upward trend

Over the past few months, the regulator of banks, Australian Prudential Regulation Authority (APRA) have been working to restrict interest-only loans. This March, they announce they would cap all new interest-only lending at 30%. Interest-only loans may increase investor speculation in the housing market. In fact, the Singapore government banned Interest-only lending in 2009 to combat this phenomenon. Investors lose out, but this is good news for owner-occupiers looking to refinance.

Investor pain is a homeowner’s gain

Interest-only loans are quite lucrative products for a bank, attracting larger sums (think huge property developments and portfolios) compared with an individual home. Consequently, banks are reducing fees and rates on owner-occupier oriented products to make up for the restrictions on interest only lending.

The big four (ANZ, Commonwealth, NAB, Westpac) account for a whopping 40% of home lending in Australia. Such a massive percentage means lower rates to entice customers, and increased competition in the market.

Even though the average rates are trending upward, individual bank products designed for homeowners might have significant savings in store for you. It’s not uncommon to find two-year fixed loans with comparison rates a shade under 4%. If you are an owner-occupier and are on a rate above 5%, you can definitely shop around for a better refinancing deal.

What about investors?

Investors can still find good deals on interest-only loans from non-bank lenders (i.e, financial institutions that do not accept deposits.) APRA does not regulate non-bank lenders and are not subject to their rules on lending. It’s also a win for investors:

“Non-bank lenders can move much quicker than banks, and exploit gaps in the market with competitive deals for investors,” says Savvy CEO Bill Tsouvalas. “If you’re an investor looking for an interest-only loan, there are plenty of non-bank lenders out there eager to get your business. A business-oriented broker can help you find something to suit your needs.”

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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.

Approval for home loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.

The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

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