100,000 mortgages were switched in the June quarter.

Every couple of months I do the rounds of approaching the lenders on behalf of my clients and ask the said lender for a rate review. A few years ago, if you justify your case, you generally got something. These days it is mostly no.

These are the main reasons I ask for a rate review.

-          Other lenders offer cheaper rates,

-          The lender is offering cheaper rates to new customers,

-          Your property has increased in value and the current LVR for your loan has decreased,

-          You have made a lump sum payment and the current LVR for your loan has decreased.

And sometimes, I simply ask for a review because I am in the lender’s portal at the time.

A Big Big strategy the majors have adopted is that they will now only use the LVR when you established the loan as the means of assessing a rate review. Your property could have increased in value by $200,000- but the lender will use the old value. Not fair.

The major’s control over 90% of the Australian mortgage market. They benefit from the misconception that a lot of people have in that “What happens to my house if my lender goes bust”. So, people stay with the majors. The majors really don’t care if you can get quoted a cheaper rate from a 2nd or 3rd tier lender. Statistically you are unlikely to leave. The "Loyalty Tax".

But that is changing. Aussie homeowners are fleeing their lenders in droves with new data revealing almost 100,000 mortgages were switched in the June quarter. That’s the highest level of mortgage refinancing since September 2023, with an estimated 1084 loans switched every single day. The surge in refinancing, highlighted in the ABS Lending Indicator data, follows recent interest rate cuts in February and May. And more to come following last week’s cut.

A recent report showed the key reasons behind reviewing their home loan and switching were:

·         To lower my interest rate (49 per cent).

·         To consolidate debt (11 per cent).

·         To increase or reduce my loan term (10 per cent).

·         To lock in a fixed rate or switch from fixed to variable (or vice versa) (10 per cent).

·         To access home loan features like an offset account or redraw facility (10 per cent).

But beware, Data from the RBA indicates that the difference between the average existing owner-occupier variable interest rate and the average rate offered to new customers is now at its narrowest point on record. That gap has shrunk to a mere 0.04 percentage points, with the average owner-occupier paying 5.79 per cent compared to 5.75 per cent for new customers. (prior to recent cut) This is the smallest difference recorded in recent RBA data.

Before I go on, remember there is an estimated $1,150- in costs associated with switching lenders.

So are people still switching for the reasons I mentioned above. A small percentage yes.

A lot are coming off a 4 or 5 year fixed rate and the lenders roll over rate is most likely uncompetitive. One lender quoted a client of mine 7.25%.

Another group are those who despise their lender for not helping them when they were “Mortgage Prisoners” and now that they can afford to refinance away, they will.  And the cost is a small price to pay.

Is there a margin I should aim for before refinancing? No. It is simply your decision.

I have to adhere to “Best Interest Duty” ie I must do the right thing for you.

Use this calculation as a guide. $100,000- x 0.10% = $6.20 per month.

A saving of $6.20 per month for every $100,000- with a 0.10% reduction.

A $400,000- would save approx. $24.80 per month or $297.60 annually.

Add the cost of refinance and this loan would be behind for nearly 4 years.

A 0.50% reduction for this loan would save $1,488- in the first year less the refi cost.

So, if you hate your lender or want a better deal. Please reach so we can crunch the numbers.

Oh, what if the refinance is to combine unsecured debts and car loans. That’s a whole different game and changes the numbers completely.

This information has been prepared by PHA Financial Services and does not take into account your objectives, financial situation or needs. Before acting on this information you should consider whether it is appropriate to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. The information provided was accurate at the time of publication and changes in circumstances after a document is published may impact on the accuracy of information. Some information may have been collated from various third parties and we make no assertion that the information was originally ours.