YBR

Australians ignore refinancing opportunities

In this article:

Yellow Brick Road reviewed the situation of 1,000 Australians who obtained a home loan more than two years ago.

40 per cent of those surveyed said they had never refinanced. Another 19 per cent hadn’t refinanced in over five years, 6 per cent had refinanced four to five years ago, 8 per cent had three to four years ago and 10 per cent had between two to three years ago.

Mark Bouris, Executive Chairman of Yellow Brick Road said that he found it hard to believe that so many people were avoiding action, particularly in light of well-publicised historically low interest rates and the potential savings available.

“It’s outrageous to think people are still paying high interest despite the opportunity to pay less. In effect you’re just handing the banks extra money. Many people take the time to drive to the cheaper grocery store just so they don’t pay an extra dollar for milk, yet when it comes to home loans they stick their head in the sand,” Mark said.

Reserve Bank of Australia data shows the benchmark 1.75 per cent interest rate is significantly lower than the average of 5.13 per cent that Australians experienced between 1990 and 2015. The all-time peak was at 17.50 per cent in January of 1990.

According to recent analysis the average discount applied to new mortgages has steadily increased in recent years. A household who took a loan out in 2010 when the average discount was around 20 basis points would today have access to discounts in the range of 90 basis points or .9%.

This combined with the fact that banks have not passed on the full RBA reduction means that this 2010 loan may today be on a current variable rate of around 5.3 per cent, whereas rates are now available at around 4.8 per cent, or better.

Mark said that even allowing for potential fees and transfer costs, it is likely that those on a home loan secured a number of years ago will be able to save each month by switching.

“For those who took out a home loan five years ago, the average rate after reductions would be 5.3 per cent. The potential savings on an average $350,000 loan with 25 years remaining could be thousands. For example, if you refinanced to a rate of 4.8 per cent, you would save $30,660 in interest over the remaining life of your loan. There are also many lenders offering very competitive rates as low as 4.1 to 4.2 per cent, if you do your research then you may find your savings could be significantly more,” he said.

According to the survey, the top three reasons for failing to refinance included not believing enough money would be saved in the process (31 per cent), thinking the fees and charges would outweigh the benefits (29 per cent) and perceiving the process as too much of a hassle (18 per cent).

“With interest rates dropping to a low that no one in my generation would have thought possible, it’s crazy to not find out if you can save. If you don’t have the time, the latest knowledge or the expertise – don’t feel overwhelmed. There are people out there to help you. Go speak to a mortgage broker and they will do the work for you. Now is the time to take to do your research and take action,” Mark said.

Demographic trends:

  • The biggest culprits of failing to refinance in the low rate environment were Queenslanders with 63 per cent saying they had either never refinanced or hadn’t for at least five years. Following Queensland (QLD) was New South Wales (NSW) at 61 per cent, Western Australia (WA) at 58 per cent, South Australia (SA) following at 57 per cent and Victoria (VIC) at 55 per cent.

  • QLD and VIC both had the lowest number of residents refinancing in the past two years (14 per cent). SA was next at 18 per cent, WA at 19 per cent and NSW at 19 per cent.

  • 40 per cent of both males and females had never refinanced. However a slightly larger amount of females (18 per cent) than males (16 per cent) had refinanced in the past two years.

  • 45 per cent of young adults (25-34 year olds) with home loans said they have never refinanced (45 per cent) whereas their older counterparts were more likely to have refinanced; 35-44 year olds (41 per cent), 45-54 (41 per cent), 55-64 (36 per cent) and 65 plus (40 per cent).

  • Yet more young adults had refinanced recently – 28 per cent of the 25-34 year olds refinanced in the past two years. This followed with 22 per cent of 35-44 year olds, 13 per cent of 45-54 year olds, 11 per cent of 55-64 year olds and 10 per cent of those aged 65 or older.

Mark said that for anyone who hadn’t refinanced in the past several years this is their wake up call to go out and at least ask the question about potential savings.

“Costs are high these days. And it makes me angry that banks are profiting from money that should be in the consumers’ hands. At Yellow Brick Road, we are striving to educate Australians to empower them to find a better deal. At a time where rates are the lowest in history, everyone should be out there speaking to their lender and mortgage broker about what they can do to save,” he said.

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