On 7th June 2022, RBA announced an increase in the cash rate by 50 basis points, taking it to 0.85%.
Commenting on the rate rise, Treasurer Jim Chalmers acknowledged that it was ‘difficult news’ for Australian families with mortgages. The combination of high inflation, housing and rising costs of living is putting a new strain on Australian homeowners, with many expected to face mortgage stress.
If you’re paying a mortgage, this news is sure to be another bitter pill, coming in soon after last month’s hike, which led to an increase in your monthly repayments. All this at a time when soaring inflation has added to the cost of nearly every household expense, including fuel, groceries, electronics, white goods, and electricity bills.
For example, the average variable interest rate is 3.17% for owner-occupiers. In this case, if you’re an owner-occupier, the monthly repayment on your $500,000 home loan may increase by around $139, while on a $750,000 home loan, the monthly hike in repayment could be in the range of $205.
Over and above, Reserve Bank governor Philip Lowe has forecasted inflation to reach 7% by the year-end, prompting experts to predict another rate rise of 0.5% in July. Some indicate that the cash rate may touch 2.5% by the end of next year.
Presently, more and more mortgage payers are looking at refinancing their existing home loans to navigate the current challenges of increasing interest rates and inflation.
Here’s a close-range view of the rate hikes, current trends in refinancing, and what the experts have to say.
Following the rate hike by RBA, the top 4 banks announced their decision to pass on the entire interest rate hike.
Westpac was the first to announce the rate hike on home loan variable interest rates by the full 0.50% for new and existing customers from 21st June.
The Commonwealth Bank, NAB, and ANZ announced the increase in their rates was in effect from 17th June.
CommBank’s standard variable rate for owner-occupiers paying both principal and interest will be 5.3% after the hike. In comparison, investor loans will increase to 5.88%.
The Bank of Queensland also announced that it would pass on the total increase to new and existing variable-rate mortgage holders from 14th June. Meanwhile, Macquarie announced that starting on 17th June, it would pass on the entire 50 basis-points hike to home loan customers with standard variable home loan rates.
The financial commitments of your home loan have likely become increasingly difficult to meet. Therefore, this may prompt you to look for a loan more flexible to your new circumstances, reduce interest repayments or even allow you to pay off your loan sooner.
This is where refinancing helps.
Refinancing means shifting from one type of loan to another with a different rate or terms. You could opt for refinancing with your current lender or seek a new one. Refinancing is also an option when owner-occupiers want to avail themselves of improved loan features and add-ons that have been introduced more recently.
Per statistics released by the ABS, in April 2022, the value of external refinancing (seasonally adjusted) compared to last year was 23.6% higher for owner-occupied housing. Meanwhile, investor housing was 10.8% higher. Overall, the value for total housing was 19.2% higher than a year ago.
These figures are significant given that refinancing housing loans between lenders (seasonally adjusted) was already at an all-time high of $17.2 billion in July 2021.
Katherine Keenan, ABS head of Finance and Wealth, explained that this surge in the value of refinancing is an indication that borrowers were seeking lower interest rates, particularly for fixed-rate loans and cashback deals across lenders.
The general view is that many Australians never bother to check on interest rates, thus paying much higher because they don’t refinance.
Against the current backdrop, leading finance experts suggest refinancing, especially if you are beginning to feel the heat following the RBA’s latest cash rate hike. However, as a home loan borrower, you needn’t press the panic button just yet!
In this competitive scenario, it’s a good idea to research the refinancing deals by smaller lenders who have consistently weaned mortgage payers away from the big banks with highly competitive rates.
The following numbers indicate that lenders across Australia are actively looking to boost their home loan portfolios. This is especially true for borrowers with a good mortgage repayment history and an adequate amount of equity.
According to a media release by ABS, the number of new loans to owner-occupier first home buyers fell 4.4% in April 2022 - 34.3% lower than a year before. The fall in numbers was witnessed across nearly all states and territories, particularly New South Wales (down 11.4%) and Victoria (down 10.1%).
Among other factors, lenders attributed the fall in both value and numbers of new loans to the softening housing market.
Graeme John, Head of Growth at Joust, explains - “In some countries like the US, home buyers refinance their loans regularly. Rather than get bogged down by the hike in monthly repayments, now is the right time for mortgage payers to get proactive and benefit from available refinancing options, some of which include good cash back offers by leading banks.”
Moreover, the effect of rising interest rates on homeowners will be most felt throughout 2023 when fixed-rate loans worth $265-$365 billion expire. This spike in fixed-rate expirations will probably see many borrowers tackling a 40% increase in repayments and pushing refinancing forward.
Refinancing can be a complex process, especially if it’s your first. If it makes you comfortable, you could also begin by looking at your current lender’s refinancing deals before checking with the others. Refinancing is a step toward being financially independent and responsible for your assets, considering that mortgage repayments are one of the most significant expenses on most monthly budgets.
Joust is one of Australia’s most user-friendly and reliable online marketplaces for home loans. More than 13,000 users trust us to find suitable deals.
Our feature-rich online tools, such as Instant Match, lets you access up to 80% of lenders in Australia and get a great deal on your home loan. Instant Match can help you benefit from average loan savings of $3,348 each year with a 0.74% average interest rate reduction. Moreover, our marketplace is free-to-use, and you are not obligated to proceed.
Be it an owner-occupier loan refinancing or investment home loan refinancing, whatever your refinancing objectives, Joust’s highly secure and user-friendly platform can help reduce your loan balance or your monthly repayments and get ownership of your home.