Early July data from the Australian Bureau of Statistics (ABS) shows the value of new finance commitments for the purchase of dwellings fell by a record 11.6% over May 2020.
This is the largest single monthly drop in the 18 year series. But at the same time, more Australians than ever refinanced their home loan in May.
The ABS data revealed that 33,712 Aussies refinanced in May, up 30% from April.
But interestingly, 64% of all refinanced loans were switching lenders, an all-time high.
Analysis by CoreLogic revealed that both the total number and value of refinanced home loans peaked in May 2020.
The total value of these refinanced home loans exceeded $15.1 billion in May, up 26% from the previous high of $12 billion in April.
Jeff Chapman, Head of product and Marketing at LJ Hooker Home Loans, said this shows that highly likely more Australians are taking advantage of rock-bottom rates.
“As budgets are stretched, a record number of people are deciding to look at their home loan for a restructure – quite possibly to get a better deal.
“While the value of houses may well drop in the next year, the mortgages on them will not,” he said.
“Historically low interest rates and a lack of investor spending are a double whammy to banks, but a boon for mortgage holders,” Chapman said.
For example, on the average loan of $494,462, analysis by online group Finder shows the average standard variable rate from the Big Four banks is 4.04% (however there are much lower home loan interest rates available in the market).
If that rate were to drop 50 basis points to 3.54%, this would mean $36,287 saved over the life of the loan.
The number of refinanced loans jumped 30% in a month, from 25,998 to nearly 33,712 in May.
This number consists of record highs for both external refinance loans, which involve people switching lenders, and internal refinance loans, which involve customers getting a better rate from their current lender.
External loans reached 21,473 and internal loans reached 12,239.
Despite all-time highs in both internal and external refi categories, 64% of all refinance loans are Australians switching lenders – the largest disparity ever.
Chapman said Aussies are shopping around and it is a good time to be looking for a lower rate.
“With the cash rate at 0.25%, the best home loan rates now start with a 2. If yours does not, it might be time to go home loan shopping.
Related post: Are you paying a bank loyalty tax on your home loan?
What are the top 4 reasons people refinance their home loans?
According to industry statistics the main 4 reasons Aussies refinance their home loans are:
- They find out there are better interest rates on offer in the market that can potentially save them thousands of dollars in interest. The best way to do this is via a lending specialist who can provide you with a free review, help you choose a better home loan, and then make the whole process easy for you in relation to paperwork
- An offset feature suits them more. An offset home loan can really work for some people – but it’s best to get advice first – and not from Bob next door! It really depends on your savings and income position. And don’t just pay hefty fees for an offset. Some loans like our 5 Star range come with an offset feature at no extra cost
- They want access to extra cash. A lot of people refinance a home loan so that they can borrow a bit more money. They can use the money for investments, to fund a home renovation or to buy a car. With rates being so low, refinancing to a cheaper rate and borrowing a little more can be quite cost-effective. Likely it will cost you less than taking out a separate car loan
- They are struggling with mortgage repayments. It’s very hard to refinance if you’re in financial distress. This is because you need to apply for a new home loan with a new lender. If you’re in this position sometimes the best approach is to focus on getting your debt, income and spending under control. However, it also pays to have a lending specialist assess your position. There are lending options available for people who may be experiencing short term financial pressure
So how do I research what a home loan refinance can do?
It’s a great time to get a lending specialist on side and understand what options you have. This will involve comparing your current home loan against what’s in the market.
LJ Hooker Home Loans lending specialists fully understand refinance options. With a wide range of product and credit solutions, they will help you compare, choose, and apply for the right home loan.
It can simply start with a phone or web based chat.
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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.